There May Be Underlying Issues With The Quality Of Kratos Defense & Security Solutions’ (NASDAQ:KTOS) Earnings

There May Be Underlying Issues With The Quality Of Kratos Defense & Security Solutions’ (NASDAQ:KTOS) Earnings

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

Check out our latest analysis for Kratos Defense & Security Solutions

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In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Kratos Defense & Security Solutions issued 18% more new shares over the last year. That means its earnings are split among a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of Kratos Defense & Security Solutions’ EPS by clicking here.

How Is Dilution Impacting Kratos Defense & Security Solutions’ Earnings Per Share (EPS)?

We don’t have any data on the company’s profits from three years ago. And even focusing only on the last twelve months, we don’t have a meaningful growth rate because it made a loss a year ago, too. What we do know is that while it’s great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn’t needed to issue shares. So you can see that the dilution has had a bit of an impact on shareholders.

If Kratos Defense & Security Solutions’ EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. But on the other hand, we’d be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical “share” of the company’s profit.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Kratos Defense & Security Solutions’ Profit Performance

Kratos Defense & Security Solutions issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Kratos Defense & Security Solutions’ statutory profits are better than its underlying earnings power. The good news is that it earned a profit in the last twelve months, despite its previous loss. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company’s potential, but there is plenty more to consider. If you want to do dive deeper into Kratos Defense & Security Solutions, you’d also look into what risks it is currently facing. For example – Kratos Defense & Security Solutions has 2 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Kratos Defense & Security Solutions’ profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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