Cathie Wood likes emerging companies that promise to disrupt industries, and Kratos Defense (KTOS) fits that bill. The company builds jet-powered drones, hypersonic rockets, and satellite ground software — equipment that is in high demand and has been proven to be highly effective in recent conflicts. Accordingly, countries worldwide are interested in scaling up their capabilities, with Kratos well-positioned to be a major supplier to NATO and allied countries.
Wood seems to like KTOS stock for that reason. The infamous investor has invested in names like Tesla (TSLA) and will probably invest in SpaceX after its upcoming initial public offering (IPO). Altogether, Cathie Wood's Ark Invest funds hold about $174 million worth of Kratos Defense. So what does she see that the sellers don't?
More Top Stocks Daily: Go behind Wall Street’s hottest headlines with Barchart’s Active Investor newsletter.
www.barchart.com Cathie Wood Can't Get Enough of KTOS Stock
Kratos is less of a defense stock and more of an autonomy-and-space stock that sells to the Pentagon. The versatility of this business gives Cathie Wood an excuse to put KTOS stock in multiple Ark Invest exchange-traded funds (ETFs) at once.
Kratos has drones, so it is in the Ark Autonomous Technology & Robotics ETF (ARKQ). However, the company's satellite software and space links also make it eligible for the Ark Space & Defense Innovation ETF (ARKX), for example.
Unlike many of her other buys, Kratos is special because Wood isn't buying a promise that might pay off a decade or later into the future. Kratos is already seeing significant orders come in due to military buildup and stockpiling efforts. Kratos CEO Eric DeMarco recently pointed out a projected fiscal 2027 national security spend of $1.5 trillion. In the first quarter of 2026, Kratos reported a $2 billion backlog, a 1.6-to-1 book-to-bill ratio, and an opportunity pipeline above $14 billion.
KTOS Stock Hasn't Done Well
KTOS stock is down 57% from its 52-week high. This is despite revenue hitting $371 million in Q1, beating the $335 million to $345 million guidance range, up almost 23% year-over-year (YOY). Adjusted EBITDA of $38.7 million also blew past the $25 million to $30 million guidance, while adjusted EPS of $0.16 topped the $0.13 that analysts expected.
The stock is still hot in many investors' eyes at this valuation. You're paying 118 times forward earnings despite the correction, and a 20% to 30% annual growth clip does not justify a premium that big. On top of that, investors need to worry about dilution. Outstanding shares have now risen to 187.5 million in 2026.
Cathie Wood has a complicated history here. She bought Kratos shares in 2021, then partially sold them at a loss throughout 2023 and 2024. Wood later bought back in with 818,000 shares in Q2 2025 as KTOS stock started going up, then sold over 1 million shares during Q3 2025 and Q4 2025. Her latest buy-in in Q1 2026 amounted to just 37,100 shares as the stock peaked.
What Should You Do With KTOS Stock?
Kratos stock rallied in a huge way from the end of 2023 to January 2026. Thus, even a 50%-plus correction from its 52-week high doesn't do it justice just yet. Yes, orders are coming in, and this company supplies in-demand products and components, but it's not the only player out there. Militaries and air forces worldwide are not desperate enough that they are buying from any source they can find.
Sales growth is expected to be just 24% in 2027 along with 41% EPS growth. At current prices, that means you're still paying more than 50 times forward 2027 earnings. Kratos would have to suddenly land large deals for that premium to make sense — and even then EPS may not increase meaningfully since the company will have to be in its buildout phase for longer. With all that being said, I'd hold on KTOS stock.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
More news from Barchart
Why Cathie Wood Seemingly Can’t Get Enough of Kratos Defense Stock Nvidia Stock Looks Undervalued. Why Buying Now Could Offer 46% Upside Potential. Oracle Stock Is Careening Toward Earnings with a Heavy $100 Billion Weight on Its Back Wedbush Thinks Cerebras Stock Is Ready for More Upside as CBRS Debuted at Just the Right Time