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Why Kratos Defense & Security Solutions Stock Slumped 8% in October

Rich Smith, The Motley Fool
Updated

What happened

Shares of small-cap defense company Kratos Defense & Security Solutions (NASDAQ: KTOS) declined 8% in value over the course of October -- but not because the news was bad.

In fact, Kratos had very little in the way of press releases to share last month, and what news it did have to share was actually pretty good (albeit it came a bit late). On Oct. 30, Kratos confirmed that its experimental jet-powered UTAP-22 Mako combat drone "recently completed" a "demonstration mission" as part of a larger military exercise involving multiple UAVs in addition to Mako.

One day later, on Oct. 31, the company announced receipt of a $14.5 million contract to supply "certain National Security related customers" with eight unidentified UAV models.

Drone shooting rockets at tank.
Drone shooting rockets at tank.

Kratos stock reports earnings tonight. Will investors attack? Image source: Getty Images.

So what

No further details were shared regarding either the Mako exercise or the drone sales contract, but that's not too surprising. Kratos management had previously told us outright that it plans to keep details on its drone development program close to the vest. It reiterated that admonition in the Oct. 31 announcement, saying that: "due to competitive, customer related and other considerations, no additional information will be provided related to these contract awards."

Now what

So why has the stock been sliding? Possibly because of the third press release Kratos issued in October -- the one announcing that earnings data for its fiscal third quarter will be coming out soon, and in fact, this very evening. Last quarter as you may recall, Kratos had promised investors that it would report positive profits in fiscal Q2 2017 -- but didn't -- resulting in a quick downturn in Kratos' stock price.

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Analysts are predicting that Kratos will in fact finally turn profitable in this evening's report, but it looks like investors are moving to the sidelines, just in case it doesn't.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.