No good news is still kind of bad news for Kratos.

What happened

Shares of military drone-builder Kratos Defense & Security Solutions (NASDAQ:KTOS) collapsed in Friday afternoon trading, falling 12.1% through 2:25 p.m. EDT on no obvious bad news.

So what

No obvious new news, that is. But if you dont mind a bit of old news, take a stroll down memory lane with me to last week, when Kratos reported its second-quarter earnings, and warned investors that its book-to-bill ratio in the quarter fell below one (indicating slowing sales), and that its book-to-bill ratio in the companys all-important drone segment fell even further -- to 0.4.

Kratos also warned at the time that it wasnt going to even get close to hitting Wall Street targets for $216 million in sales this current third fiscal quarter, and that sales would probably max out at $205 million or less.


Image source: Getty Images.

Now what

That bad news cost Kratos 12% on earnings day, but in the days since, the shares had climbed back steadily through the middle of this week, cutting Kratos post-earnings losses roughly in half.

But heres the thing: Kratos news last week was bad. In addition to the weak order bookings, and weak revenue guidance, Kratos admitted that free cash flow for the second quarter had turned negative, reversing a two-quarter streak of generating strong cash profits. And the company hasnt reported any good news in the days since, such as might have justified the rebounding stock price.

Seems to me, all were really seeing today is gravity reasserting its hold, and Kratos stock falling back toward the levels it was (rightly) reduced to last week.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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