Why Kratos Defense Stock Keeps Going Down

Kratos Defense & Security (NASDAQ: KTOS) banal resumed falling Friday, dropping different 7% done 11:35 a.m. ET aft announcing plans to merchantability astatine slightest $1.2 cardinal successful caller stock.

The atrocious quality started past nighttime with Kratos informing it volition merchantability $1 cardinal successful stock, and perchance $1.15 cardinal if underwriters workout overallotment options. By this morning, the offering had swelled successful size:

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• 14,285,714 shares sold for $84 a stock (versus a closing terms of much than $92 past night).

• 2,142,857 more shares disposable for the overallotment.

• A full of possibly $1.4 cardinal to beryllium raised (before fees), and 16.4 cardinal shares connected offer.

• And extracurricular shareholders diluted by 9.6%.

This is hardly a surprise, though. It's not adjacent needfully atrocious news!

As I pointed retired aft Kratos reported Q4 earnings, Kratos burned $137.4 cardinal successful antagonistic escaped currency travel successful 2025. Wall Street expects Kratos to support connected burning currency for the adjacent 2 years.

At the aforesaid time, Kratos's banal terms is up 250% implicit the past year, giving the institution a immense inducement to merchantability its costly shares present and crook them into the substance (cash) that it needs to support growing.

This is precisely what Kratos did today.

And I cannot accidental I blasted them. After all, astatine a stock terms good northbound of 700 times trailing earnings, Kratos's banal terms was ridiculously overvalued yesterday. (It inactive is today.) Taking vantage of that overvaluation to rise currency and guarantee the institution never, ever runs retired of wealth again makes cleanable sense.

While investors whitethorn not similar the dilution, Kratos's equilibrium expanse looks stone coagulated aft the stock sale. After making this move, Kratos whitethorn ne'er request to merchantability shares again.

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