Okay, so the world is, let’s say, eventful. Between everything happening internationally, defense stocks are having a moment. It’s not exactly a surprise, right? The S&P 500 is doing its usual little dance, but the iShares U.S. Aerospace & Defense ETF is up over 11% this year. That’s…a statement. Everyone’s looking at the big guys – L3Harris, Northrop Grumman, Lockheed Martin – and, sure, they’re solid. But they’re also…established. Like your Aunt Mildred’s sensible shoes. Reliable, but not exactly setting any land speed records.
So, let’s talk about the under-the-radar players. The ones that aren’t quite household names, but might actually, you know, grow. We’re looking at AeroVironment (AVAV 2.27%) and Kratos Defense & Security Solutions (KTOS 2.16%). Think of them as the scrappy indie bands of the defense industry. Less stadium tours, more nimble innovation.
AeroVironment: Drones, Basically
AeroVironment makes drones. Small ones, medium ones, the kind that probably have better surveillance capabilities than I do. Also, space stuff and…cyberwarfare? It sounds like a Tom Clancy novel. And, yes, their drones are getting a workout in Ukraine. Which, tragically, is good for business. The conflict in…other places will likely just add to the demand. It’s a grim thought, but let’s be honest, it’s a reality.
The stock is up 68% over the last year, which is nice. But it took a little dip recently. Apparently, investors got their feelings hurt by a quarterly earnings report. Like, the company made almost $4.08 million, which is…a lot of money? But they lost six cents a share? The drama! It turns out they bought a company called BlueHalo, which is good for expanding into bigger drones and underwater vehicles. They also have a $1.1 billion backlog. Which, frankly, sounds exhausting. Apparently, the Space Force was a little slow to order some antennas. It’s always something. But the Defense Department is apparently very keen on the drones. They’re predicting revenue between $1.85 and $1.95 billion next year. That’s a jump from $820.6 million last year. And adjusted EBITDA of $265-$285 million. So, yeah, they seem to have a plan.
Kratos: Reloading America’s Arsenal
Kratos. The name sounds like a villain from a Greek myth, which feels appropriate. They make affordable, rapidly developed military tech. Drones, unmanned systems, satellites, missile guidance…the whole shebang. They’re up 15% this year and over 200% over the past year. That’s a solid performance, even for a company that sounds like it was designed in a war room. Revenue was $1.35 billion last year, up 18.5%. They’re predicting $1.59 to $1.67 billion this year. And EPS rose 18% to $0.13. It’s like they’re deliberately trying to make other companies look bad.
They’re also buying an Israeli company called Orbit Technologies for $356.3 million. And they just got a $7 million contract to build an anti-drone shield. Which, frankly, sounds like something out of a science fiction movie. It’s basically a way to stop drones from…you know…doing drone things.
Long-Term Prospects: Proceed with Caution (and a Little Hope)
Okay, so both of these companies have high valuations. They’re not exactly cheap. But they’re also nimble and responsive. And they’re willing to acquire other companies. Which is always a good sign. They’re also selling high-margin technology. Which, let’s be honest, is what everyone wants. The stocks will probably be volatile. But that’s just the price of admission.
Look, investing in defense stocks is…complicated. It’s not exactly feel-good investing. But in a world that feels increasingly…unstable, it’s also…pragmatic. And these two companies, despite being relatively small, seem to be positioning themselves for long-term growth. Just don’t expect a parade.
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2026-03-15 13:42