Kraken Robotics (KRKNF +0.27%) stock has been struggling lately. The company's share price hit a lifetime high of $8.13 per share in March, soon after it was announced that the marine technologies company was acquiring Covelya for 615 million Canadian dollars, but its stock has now lost more than half of its value since hitting that valuation peak.
Valuation multiples for next-generation defense tech companies have generally come down in subsequent trading. Investors are concerned about the potential integration risks with the Covelya acquisition, and the company's recent second-quarter report showed relatively modest growth. As a result, Kraken stock is now trading down roughly 21% year-to-date and 55% from its 2026 high.
Should investors be buying the stock in September?
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Kraken shareholders have felt growing pains
Kraken Robotic is a leading provider of subsea batteries for uncrewed underwater vehicles (UUVs), synthetic aperture sonar (SAS) for ocean-floor mapping, and other subsea intelligence and navigation solutions. Through its acquisition of Covelya, the company has also significantly broadened its product portfolio and expanded its capabilities in positioning, scanning, and overall subsea robotics.
While the acquisition looks promising, the combined company still has a lot to prove. Kraken has yet to report a quarter that includes Covelya's business contributions, and its own revenue increased just 4% year over year to CA$27.3 million in the second quarter.
Additionally, management indicated that this year's growth will be very heavily weighted toward the fourth quarter. That sets up a potentially tough situation for investors -- as shareholders may be kept waiting into next year for the vital Q4 report that will shed more definitive light on the company's growth story. On the other hand, there are long-term expansion opportunities here that still look quite compelling -- and recent pullbacks for the stock could present a worthwhile entry point for patient investors.
Playing the waiting game
As a business that primarily provides products and services to defense and offshore energy customers, Kraken's business performance is prone to lumpy revenue recognition. Even so, it's not surprising that the company's sales and earnings performance in Q2 didn't do much to drive excitement among investors.
Were it not for the CA$1.5 million reversal of previously recognized product revenue due to "a change in scope associated with an integration project," sales would have come in at CA$28.8 million -- up 9% year over year. Meanwhile, the business posted a CA$7.5 million loss due to provisioning for probable costs related to arbitration over a 2017 supplier contract. Non-GAAP (adjusted) net income came in at CA$0.8 million -- down from CA$1.3 million in the prior-year period.
For a company with a market capitalization of roughly $1.4 billion, there's still strong growth priced into Kraken stock even after big pullbacks this year. The company's Q2 report didn't deliver on some of the visibility investors were looking for, and management's comments about revenue timing set up a potentially agonizing wait for a fourth-quarter report likely to arrive in February or March of next year.
OTC: KRKNF
Key Data Points
Looking past Kraken's unexciting Q2 report
Kraken's Q2 report did actually arrive with some encouraging news for investors. For starters, the company announced it had entered into a new long-term master supply agreement (MSA) to supply batteries to an additional XL-UUV customer. The word "additional" is particularly significant here because it suggests the company is scoring contract wins in addition to the underwater drone build-outs with Anduril, which are central to its growth story.
Anduril is now ramping up production of its Dive-LD and Dive-XL underwater drone platforms, which feature subsea batteries and other technologies provided by Kraken, with production at its Rhode Island factory expected to reach full capacity by the end of 2027. If that proves to be the case, Kraken will likely post explosive sales growth next year -- and news of long-term MSAs with other battery customers seems to bode very well for the demand outlook.
At a time when high-profile artificial intelligence companies, including Nvidia and Micron Technology, are posting stellar sales and earnings growth and AI stocks as a category are playing such a huge role in shaping the overall market, Kraken Robotics appears decidedly out of step with what's hot right now. Growth has been uneven, and investors will have to wait to get a read on the extent to which the Covelya acquisition has been successful. Alternatively, the company appears to have the pieces in place to power strong new growth phases -- and I think the stock could deliver big upside for patient investors.
