Trade of the Day: Wager on Kratos Defense (KTOS) Stock as Drone Demand Heats Up


  • Shares of Kratos Defense (KTOS) slipped on Monday, presenting a possible buying opportunity.
  • The nature of warfare has pivoted to autonomous aircraft, one of Kratos’ specialties.
  • Long-expiry KTOS stock call options could provide an enticing bullish idea.
KTOS stock - Trade of the Day: Wager on Kratos Defense (KTOS) Stock as Drone Demand Heats Up

Source: Michael Vi /

Modern warfare tactics have changed drastically. Increasingly, unmanned aerial vehicles (UAVs) have played a pivotal role in shaping the defense landscape, which bodes well for security specialist Kratos Defense (NASDAQ:KTOS). With its UAV project gaining steam, KTOS stock could be an intriguing long-side wager.

Specifically, Kratos developed a stealthy unmanned UAV called the Valkyrie XQ-58A. Per the company’s website, the Valkyrie is a combat drone designed to deliver weapons or assist fighter jets. Powered by artificial intelligence, the UAV could be a force multiplier. Most importantly, it can conduct high-risk missions while keeping its human operators safe from harm.

Another element that bolsters KTOS stock is that rival nations – particularly China and Russia – are investing heavily in military-related AI functionalities. Indeed, earlier this year, the South China Morning Post reported that the two nations have agreed to consult and coordinate with each other on the military use of AI.

KTOS stock commands incredible relevance, and the incentive to support Kratos may only rise from here.

A Rought Start Presents a Possible Opportunity

Although the backdrop appears favorable in terms of flashpoints and global rivalries, Wall Street hasn’t been particularly kind to KTOS stock. Since the start of the year, shares have lost more than 10%. However, this circumstance could shift positively soon.

Beyond the recognition that global affairs are becoming more unsettled, KTOS stock appears underappreciated. That’s odd because analysts rate shares a consensus moderate buy with a $22.63 average price target, projecting almost 28% upside potential.

Currently, KTOS stock trades at 2.23x trailing-12-month (TTM) revenue. However, on average, analysts anticipate Kratos to generate sales of $1.14 billion for the current fiscal year. Assuming the same shares outstanding count (on a TTM basis) of 133.7 million, KTOS’ sales multiple would drop to 2.08x. That’s more in line with the sector average of 1.97x.

Plus, with the intense focus on drone warfare, Kratos’ sales potential could be much higher than analysts are currently projecting. Thus, speculators may have an upside opportunity with KTOS stock.

Trade of the Day: Buy KTOS Stock Call Options

For today’s trade of the day, I’m looking at buying KTOS stock call options, specifically the 15 November 2024 $20 call. That’s the longest-expiry date available.

On Monday, this contract closed at a premium of $2.30. Further, the bid-ask spread as represented by the midpoint price came out to around 6.6%.

To be sure, that’s relatively high compared to popular options trades. However, given the lower volume of KTOS stock, it’s a decent spread, especially considering that it’s also out the money (OTM). Granted, this dynamic adds risk to Kratos. Still, there are enticing factors at play.

Primarily, within the past few months, KTOS stock has breached the $20 level, first in December and later in February. It also shot past the $30 level in February 2021. Given the precedent, the bulls may try to push shares past this psychologically important level.

For full disclosure, Barchart notes that there are significant resistance barriers, starting from $18.23 to $19.62. Nevertheless, should KTOS stock move past them, $20 could become a foregone conclusion.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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