Passive investing in index funds can generate returns that roughly match the overall market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) share price is up 36% in the last 1 year, clearly besting the market return of around 25% (not including dividends). So that should have shareholders smiling. Zooming out, the stock is actually down 9.9% in the last three years.
Since the stock has added US$143m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Kratos Defense & Security Solutions went from making a loss to reporting a profit, in the last year.
While it's good to see positive EPS of US$0.065 this year, the loss wasn't too bad last year. We'd argue the positive share price reflects the move to profitability. Inflection points like this can be a great time to take a closer look at a company.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. It might be well worthwhile taking a look at our free report on Kratos Defense & Security Solutions' earnings, revenue and cash flow.
A Different Perspective
It's good to see that Kratos Defense & Security Solutions has rewarded shareholders with a total shareholder return of 36% in the last twelve months. That gain is better than the annual TSR over five years, which is 1.4%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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 2 warning signs we think you should be aware of.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of undervalued small cap companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.