Aerospace and defense company Kratos (NASDAQ: KTOS) reported Q1 CY2026 results topping the market’s revenue expectations, with sales up 22.6% year on year to $371 million. Revenue guidance for the full year exceeded analysts’ estimates, but next quarter’s guidance of $405 million was less impressive, coming in 2.3% below expectations. Its non-GAAP profit of $0.16 per share was 19.3% above analysts’ consensus estimates.

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Eric DeMarco, Kratos’ President and CEO, said, “Kratos’ balanced business model, including making internally funded investments in property, plant, equipment and facilities, and the rapid development and fielding of relevant products for the Department of War, while generating growth and profitability, is accelerating as reflected in our Q1 results and 1.6 to 1.0 book to bill ratio. There is a generational recapitalization of the U.S. defense industrial base underway and Kratos is committed to doing its part to ensure that the Department and our country are successful.”

Company Overview

Established with a commitment to supporting national security, Kratos (NASDAQ: KTOS) is a provider of advanced engineering, technology, and security solutions tailored for critical national security applications.

Revenue Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Kratos’s sales grew at an excellent 12.9% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Kratos’s annualized revenue growth of 14.3% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Kratos’s organic revenue averaged 14.6% year-on-year growth. Because this number aligns with its two-year revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Kratos reported robust year-on-year revenue growth of 22.6%, and its $371 million of revenue topped Wall Street estimates by 8.1%. Company management is currently guiding for a 15.2% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 22.8% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and suggests its newer products and services will fuel better top-line performance.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Kratos was profitable over the last five years but held back by its large cost base. Its average operating margin of 2% was weak for an industrials business.

Looking at the trend in its profitability, Kratos’s operating margin decreased by 1 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Kratos’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Kratos generated an operating margin profit margin of 1.3%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Kratos’s EPS grew at a solid 10.4% compounded annual growth rate over the last five years. However, this performance was lower than its 12.9% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.

Diving into Kratos’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Kratos’s operating margin was flat this quarter but declined by 1 percentage points over the last five years. Its share count also grew by 40.5%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Kratos, its two-year annual EPS growth of 15.8% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q1, Kratos reported adjusted EPS of $0.16, up from $0.12 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Kratos’s full-year EPS of $0.59 to grow 43.7%.

Key Takeaways from Kratos’s Q1 Results

We were impressed by how significantly Kratos blew past analysts’ organic revenue expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. On the other hand, its EBITDA guidance for next quarter missed and its revenue guidance for next quarter fell short of Wall Street’s estimates. This outlook is weighing on shares. Zooming out, we think this was a mixed print. Investors were likely hoping for more, and shares traded down 3.8% to $60.90 immediately following the results.

Should you buy the stock or not? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here (it’s free).