Why Kratos Defense Stock Keeps Going Down

MrDecoder · 2026-02-27T21:31:40+00:00

Kratos Defense & Security's stock fell 7% after announcing plans to sell up to $1.4 billion in new shares. Despite potential dilution, the capital raise aims to address cash flow needs, following a 250% stock price increase over the past year.

MrDecoder

2026-02-27 21:31:40

Abstract generation in progress

Kratos Defense & Security (KTOS 7.45%) stock resumed falling Friday, dropping another 7% through 11:35 a.m. ET after announcing plans to sell at least $1.2 billion in new stock.

The bad news started last night with Kratos warning it will sell $1 billion in stock, and potentially $1.15 billion if underwriters exercise overallotment options. By this morning, the offering had swelled in size:

14,285,714 shares sold for $84 a share (versus a closing price of more than $92 last night).
2,142,857 _more _shares available for the overallotment.
A total of perhaps $1.4 billion to be raised (before fees), and 16.4 million shares on offer.
And outside shareholders diluted by 9.6%.

Image source: Getty Images.

Kratos needs cash

This is hardly a surprise, though. It’s not even necessarily bad news!

As I pointed out after Kratos reported Q4 earnings, Kratos burned $137.4 million in negative free cash flow in 2025. Wall Street expects Kratos to keep on burning cash for the next two years.

At the same time, Kratos’s stock price is up 250% over the past year, giving the company a huge incentive to sell its expensive shares now and turn them into the fuel (cash) that it needs to keep growing.

This is precisely what Kratos did today.

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NASDAQ: KTOS

Kratos Defense & Security Solutions

Today’s Change

(-7.45%) $-6.86

Current Price

$85.28

Key Data Points

Market Cap

$16B

Day’s Range

$84.56 - $86.30

52wk Range

$25.11 - $134.00

Volume

472K

Avg Vol

3.2M

Gross Margin

22.14%

Is Kratos stock a buy?

And I cannot say I blame them. After all, at a share price well north of 700 times trailing earnings, Kratos’s stock price was ridiculously overvalued yesterday. (It still is today.) Taking advantage of that overvaluation to raise cash and ensure the company never, ever runs out of money again makes perfect sense.

While investors may not like the dilution, Kratos’s balance sheet looks rock solid after the share sale. After making this move, Kratos may never need to sell shares again.

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