Kratos Defense and Security (NASDAQ: KTOS) Shares were down 5.5% as of 11 a.m. ET Tuesday, in what probably should have been considered good news.
Sky Perfect JSAT Corporation selected Kratos to develop the terrestrial system for its new 5G non-terrestrial network (NTN) in the Asia-Pacific region.
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Sky Perfect describes its NSN as essentially a satellite communications system, although it will also use long-endurance high-altitude platforms (HAPs, such as drones and blimps) to supplement connectivity. Kratos’ role in this project will be to provide the software for ground systems that allow Earth nodes to communicate with satellites and HAPS.
It is important to note, however, that at this point the project is only focused on demonstrating “initial validation and interoperability”, as Sky Perfect CEO Mr. Yuma Minowa points out. We are really in the research and development phase of NSN and it is not close to commercial viability yet.
Therefore, assessing the revenue stream that Sky Perfect’s NSN could generate is an exercise in guesswork at this point. It makes sense that the financial details of the project have not yet been made public. Still, it’s worth noting: Kratos’ press release had no details on how much he might be paid for his work at NSN.
That makes it difficult to say how important the news is to Kratos. That does What seems clear is that, at this point, NSN doesn’t look like a big enough business to move the needle for Kratos, or to make the stock’s 650 times earnings price-to-earnings ratio look less expensive.
So why is Kratos stock down today on potentially good news? My guess is that this is a simple overvaluation.
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