Why Kratos Defense Stock Keeps Going Down
Key Points
Kratos announced $1.2 billion in share sales last night.
Today, it raised that number as high as $1.4 billion.
Kratos Defense & Security (NASDAQ: KTOS) 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:
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- 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.
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.
Should you buy stock in Kratos Defense & Security Solutions right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kratos Defense & Security Solutions. The Motley Fool has a disclosure policy.
