AeroVironment (AVAV), the largest pure-play among U.S. drone stocks, closed at $156.99 on September 15 — 62% below its January high of $417.86. Kratos Defense (KTOS) closed at $47.62, down 64% from its own January peak of $134. Both companies are growing revenue by double digits and posting record order backlogs, so why have their drone stocks fallen by more than half, in some cases to a third of their peak value? This piece checks whether these drone stocks are now an attractive entry point, based on recent earnings, the policy backdrop, and how much optimism is already priced in.
Why drone stocks fell more than 60% from their highs
Earlier this year, the Trump administration’s “Unleashing American Drone Dominance” executive order and restrictions on Chinese-made drones pushed drone and counter-drone stocks to valuations more typical of software companies than defense hardware makers. Kratos briefly traded at a price-to-sales ratio of 15 to 18 times — a level usually reserved for high-growth software names, not hardware contractors. That premium unwound once it became clear that Pentagon procurement moves through long prototype and qualification stages before real production dollars show up, and after Kratos lost out to larger rivals in the Air Force’s Collaborative Combat Aircraft (CCA) selection. Kratos now trades at roughly 6 times sales, a level that looks more reasonable for a defense hardware company.
AeroVironment’s large loss: an accounting write-down, not a business problem
AeroVironment posted a trailing-twelve-month net loss of $202.8 million, or -$4.07 per share, which at first glance looks like a company in serious trouble. But the core of that loss is a $151.3 million goodwill impairment in its Space segment, triggered after the Space Force issued a stop-work order in January 2026 on the BADGER phased-array antenna contract under the SCAR program.
A goodwill impairment is an accounting adjustment that writes down the book value of a previously acquired business to reflect lower expectations for its future cash flows — no cash actually left the company. That’s why AeroVironment’s adjusted (non-GAAP) EPS for that same quarter was actually positive, at $0.64. Still, calling it “just an accounting charge” doesn’t make the underlying event disappear — the contract really was halted, and that’s a genuine business risk worth tracking.
The core drone business, meanwhile, has been moving in the opposite direction. Fiscal Q4 2026 (February-April) revenue came in at $641.6 million, up 133% year over year (31% organically, excluding acquisitions), while adjusted EBITDA more than doubled to $140.1 million, a 22% margin. Funded backlog jumped 65% to $1.2 billion, and full-year bookings of $2.7 billion outpaced roughly $2 billion in revenue for a 1.4 book-to-bill ratio — a forward-looking signal that new orders are outrunning what’s already being delivered. In July, AeroVironment also won a $500 million fixed-price Army contract for its Titan RF counter-drone system running through June 2029.
Kratos: revenue is growing, but dilution and margin pressure are weighing on it
Kratos grew trailing-twelve-month revenue 25.5% to $1.52 billion, with net income up 113% to $30.9 million. But the company also raised $1 billion through a stock offering to fund new production facilities, which diluted per-share earnings. A growing mix of fixed-price contracts, combined with rising supply-chain costs, has squeezed margins, and heavier capital spending has pushed free cash flow negative. Layered on top of the CCA program loss mentioned above, Kratos has actually fallen further from its high than AeroVironment has.
| Metric | AeroVironment (AVAV) | Kratos (KTOS) |
|---|---|---|
| Price (9/15) | $156.99 | $47.62 |
| vs. 52-week high | -62% | -64% |
| TTM revenue growth | +84.4% | +25.5% |
| Forward P/E | 46.1x | 52.4x |
| Upside to avg. analyst target | +41.9% | +118.8% |
Backlogs still look solid
Despite the stock declines, order metrics at both companies have actually been improving. AeroVironment’s 1.4 book-to-bill ratio points to continued revenue growth ahead. Kratos’s backlog has topped $2 billion, with about 72% funded by committed budget, and the company is guiding for 20%-plus annual revenue growth for at least four more years. The policy backdrop remains supportive too: the fiscal 2027 defense budget request includes roughly $75 billion for unmanned systems and counter-drone technology, and the FCC has banned distribution of new Chinese-made drones since December 2025. Combined with the executive order pushing for more domestic production, the structural policy tailwind behind U.S. drone makers hasn’t gone away.
The strongest counterargument: even after the crash, these drone stocks trade at 40-50x earnings
The core pushback is that a big drop in price doesn’t automatically mean a stock is cheap. AeroVironment’s fiscal 2027 revenue guidance implies only about 10% growth, yet the stock trades at 46 times forward earnings — a multiple that’s pricing in far more margin expansion and counter-drone growth than the top-line guidance alone would suggest. Kratos has guided for more than 20% revenue growth, but its trailing P/E of 282 is extreme relative to today’s earnings base, and the 118% upside analysts see still depends on profits actually growing that much over the next few years. There’s typically a long lag between budget authorization and actual contract payments, and individual program losses — like Kratos missing out on CCA — remain a real risk.
What to watch next
The first thing to track is AeroVironment’s fiscal Q2 2027 earnings, expected around December 9, with a focus on whether Titan RF contract revenue is being recognized on the guided schedule. Second, watch whether Kratos’s Q3 2026 results (expected in November) show improving margins and a turn to positive free cash flow following the stock offering. Third, the pace at which the fiscal 2027 defense budget is actually disbursed, along with the frequency of new counter-drone contract announcements, will show whether the policy tailwind is translating into real dollars rather than just headlines.