This Defense Stock Is Up 113% This Year—Is It Still a Buy?

Karman (NYSE: KRMN), a mid-cap defense contractor specializing in mission-critical missile and space systems, has delivered a nearly 113% year-to-date return by September 15, 2025, driven by accelerating Q2 2025 revenue growth of 35.3% and a 36% increase in its funded backlog to $719 million, providing strong future revenue visibility. The company benefits from a vertically integrated model, high customer stickiness (87% sole/single-source contracts), and robust 41% gross margins, despite a high 123x forward P/E and a consensus price target suggesting slight downside, with negative Q2 cash from operations attributed to increased receivables.

Analysis

Karman (KRMN), a recent IPO in the defense sector, has delivered a remarkable stock performance, rising nearly 113% year-to-date as of mid-September 2025. The company specializes as a vertically-integrated supplier of mission-critical systems for missile and space programs, a position that affords it significant competitive advantages. This is evidenced by its high customer stickiness, with 87% of 2023 revenue coming from sole-source or single-source contracts, and robust gross margins of nearly 41% in the last quarter. The firm's growth is accelerating, with Q2 2025 revenue up 35.3% and net income increasing 48% to $6.8 million. Furthermore, a 36% growth in its funded backlog to $719 million provides strong forward revenue visibility, representing approximately 1.6 times its 2025 midpoint revenue guidance. However, this strong fundamental picture is contrasted by a very high valuation at 123x forward P/E and mixed analyst sentiment. While Raymond James projects a 57% upside with a $100 price target, the consensus target of $60.60 implies downside from the current price. A negative cash from operations of $17.4 million, while attributed to a temporary rise in accounts receivable common in the industry, remains a key metric to monitor.

Key Decisions for Investors

• Given the stock's rapid appreciation and high 123x forward P/E ratio, prospective investors should view the current price as a high-risk entry point and may consider waiting for a substantial drawdown before initiating a position.
• For existing investors who have benefited from the 190% post-IPO gain, it could be prudent to trim the position to lock in profits, managing risk while retaining exposure to the company's strong growth trajectory.
• All investors should closely monitor future earnings for continued backlog and revenue growth to justify the premium valuation, alongside a return to positive cash from operations as the reported increase in accounts receivable is converted to cash.