Discover the Emerging Defense Company in the USA (Avoid Investment for Now)
In 1991, the world crashed into a brand-new era. After almost half a century of chilly warfare, the United States (and other Western nations) experienced a significant reduction in defense spending following the fall of the Soviet Union in '91. This shift led to a flurry of closures and mergers among American defense businesses, with big-time players like Lockheed, Northrop Grumman, and Boeing gobbling up their competitors. This consolidation left us with a smaller yet mightier set of defense stocks to invest in.
Fast forward to 2020, and Palantir Technologies became the first new initial public offering (IPO) of a defense stock in recent memory. Some believed that Anduril might follow suit, but that wasn't to be just yet. Instead, a lesser-known company called Karman Holdings (NYSE: KRMN) snagged the spotlight in a New York Stock Exchange debut two weeks ago.
Karman's IPO flew under the radar for many, including myself – a defense stock enthusiast. However, after its public debut, I figured it was time to take a gander at this new kid on the block.
Meet Karman Holdings
Karman touts itself as a space and defense company, reminiscent of Boeing's Defense, Space & Security (BDS) division. But unlike the colossal BDS division, which boasts a whopping $24 billion annual revenue, Karman's entire business brings in just around $280 million.
So, what does Karman actually do in space? They've got three main commercial products tailored for rocket creation, ranging from fairings to protect rocket payloads, interstage systems connecting rocket stages, and rocket motors and launchers. In the military sector, they switch gears and focus on deploying munitions, developing other spacecraft such as lunar landers, satellites, and interplanetary space probes.
All things considered, Karman can be summed up as producing spacecraft parts.
Karman's Financial Moves
With a handle on what Karman does, let's delve into how it fared financially in 2023 and 2024. In 2023, the company clinched $281 million in revenue, marking a 24% increase compared to 2022. For the first three quarters of 2024, Karman reported $254 million in revenue, indicating a potential $339 million annual revenue run rate. If they manage to hit this target, they'll have grown 21% in 2024.
Karman also turned a profit in 2023, generating $11 million in the first nine months of 2024, putting them on track for an estimated $15 million full-year profit. This translates to a net profit margin of about 4.3%. Free cash flow is similar, with $8 million in cash profit generated over the last three quarters, implying an $11 million annual run rate for free cash flow generation.
So, what does this all mean for investors?
Is Karman Stock a Good Buy?
Divide Karman's $4 billion market capitalization by the run rates mentioned, and you'll find that Karman stock is currently valued at approximately:
- 8 times trailing sales
- 267 times trailing earnings
- 364 times trailing free cash flow
As you can imagine, these are astronomical multiples for a defense stock. Even the 10 most popular U.S. defense stocks I surveyed in October 2024 couldn't touch these valuations.
Long story short: Karman Holdings stock is a pricey investment. The only reason I can think of for buying shares is if you're eager to watch your money skyrocket – or disappear.
- Given the popularity of defense stocks like Lockheed, Northrop Grumman, and Boeing following consolidations in the 90s, one might consider investing in a newcomer like Karman Holdings, which recently debuted on the New York Stock Exchange.
- In the financial year 2023, Karman Holdings reported $281 million in revenue, a 24% increase from 2022, and generated $11 million in profit, indicating a net profit margin of about 4.3%.
- While Karman Holdings' market capitalization is $4 billion, they are currently valued at astronomical multiples of 8 times trailing sales, 267 times trailing earnings, and 364 times trailing free cash flow, making them a pricey investment.
- Investors might find Karman Holdings stock appealing if they are willing to take a risk and potentially witness rapid growth or significant losses, as the high valuations could lead to either scenario.
