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For many, the main point of investing in the stock market is to achieve spectacular returns. While the best companies are hard to find, but they can generate massive returns over long periods. For example, the Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) share price is up a whopping 519% in the last half decade, a handsome return for long term holders. If that doesn't get you thinking about long term investing, we don't know what will. On top of that, the share price is up 30% in about a quarter. But this could be related to the strong market, which is up 17% in the last three months.
Anyone who held for that rewarding ride would probably be keen to talk about it.
We don't think that Kratos Defense & Security Solutions' modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. It would be hard to believe in a more profitable future without growing revenues.
In the last 5 years Kratos Defense & Security Solutions saw its revenue grow at 2.2% per year. That's not a very high growth rate considering the bottom line. Therefore, we're a little surprised to see the share price gain has been so strong, at 44% per year, compound, over the period. We'll tip our hats to that, any day, but the top-line growth isn't particularly impressive when you compare it to other pre-profit companies. It's not immediately obvious to us why the market has been so enthusiastic about the stock, but a more detailed look at revenue and profit trends might reveal why shareholders are optimistic.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. So it makes a lot of sense to check out what analysts think Kratos Defense & Security Solutions will earn in the future (free profit forecasts).
A Different Perspective
It's good to see that Kratos Defense & Security Solutions has rewarded shareholders with a total shareholder return of 42% in the last twelve months. Having said that, the five-year TSR of 44% a year, is even better. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Kratos Defense & Security Solutions has 5 warning signs we think you should be aware of.
Kratos Defense & Security Solutions is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
This article by Simply Wall St is general in nature. 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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