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Exclusive News
Karman Tanks 14%: Opportunity or Warning for This Defense DarlingAuthor: Leo Miller. Publication Date: 3/27/2026. 
Key Points
- Defense stock Karman took the market by storm in 2025, with the company growing to a market capitalization of above $10 billion.
- After a 14% post-earnings drop, is there a clear road to recovery ahead?
- A long-term continuation of defense spending increases underpins the stock's valuation.
- Special Report: Elon Musk: This Could Turn $100 into $100,000
In 2025, Karman (NYSE: KRMN) was one of the market's hottest stocks. Shares ended the year near $73, rising more than 300% from their IPO price of $22. The new year has been more mixed: the stock is up over 15% in 2026 but about 25% below its January all-time high. Investor reaction to Karman’s latest earnings report exacerbated the pullback, with shares plunging nearly 14% in a single day.
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Karman supplies mission-critical components for rapidly expanding defense technologies. The company's revenue growth in 2025 was among the highest in its industry, and it delivered impressive margins. Against that backdrop, is there an opportunity in Karman shares? Let’s examine the firm's latest report. Karman Posts Top-End Growth with Strength Across SegmentsIn fiscal Q4 2025, Karman reported revenue of $134.5 million, up just over 47% year over year and modestly above estimates. For the full year, revenue rose nearly 37% to $471.5 million. Among a group of more than 20 U.S. aerospace and defense stocks with market caps above $10 billion, Karman’s full-year growth was second only to Rocket Lab (NASDAQ: RKLB), which grew 38%. All of Karman’s segments posted strong quarterly growth:
- Q4 Hypersonics & Strategic Missile Defense Growth: +41.8%
- Q4 Space and Launch Growth: +24.6%
- Q4 Tactical Missiles & Integrated Defense Growth: +77.0%
The firm reported a full-year gross margin of 40% and an operating margin of 15.5% — placing it among the top five and top 10, respectively, within the peer group. Its operating margin contrasts sharply with Rocket Lab’s, which was -38% in 2025. Adjusted earnings per share (EPS) in Q4 rose from 3 cents to 11 cents year over year. Full-year adjusted EPS increased from 13 cents in 2024 to 37 cents in 2025. The Q4 11-cent figure was in line with expectations. Karman highlights adjusted EBITDA margin as a key profitability metric. That margin climbed 230 basis points year over year in Q4 to 31.2% and increased 10 basis points for the full year to 30.8%. Robust Long-Term Defense Spending Is Vital to KRMN’s OutlookKarman is delivering top-tier growth and margins that outpace many much larger companies. Yet the stock trades at a forward price-to-earnings ratio of roughly 130x, implying the market expects several years of strong growth and margin expansion. The company benefits from strong demand across critical defense verticals, but the key question is duration. Karman’s $800 million backlog — about 1.7 times 2025 revenue — provides solid near-term visibility but does not guarantee five- to 10-year demand. Karman’s competitive products are evident in its growth and margins, but a bullish view on long-term defense spending is essential to justify the current valuation. What is the company saying, and what do external indicators show? Karman Touts “Generational” Demand Increase as Conflicts WageFor 2026, Karman is forecasting an even stronger year, with midpoint revenue growth of 53%. The company expects adjusted EBITDA margin to moderate to around 29.5% as a result of recent acquisitions. Karman describes the market as undergoing a "generational" increase in demand for missiles, interceptors, hypersonics, unmanned aerial systems, maritime defense, and space and launch. Management said, "This is a demand environment that we expect to persist through the end of the decade and beyond." The company also expects additional growth vectors — such as the Golden Dome concept — to develop over time. Geopolitical tensions, including conflicts in Ukraine and the Middle East, suggest global demand for defense capabilities is rising. The White House has requested $200 billion in additional funding related to the Iran situation — roughly a 24% increase on top of the Pentagon’s previously approved $838.7 billion budget, pending congressional approval. Meanwhile, European NATO members have pledged to significantly boost defense spending as a share of GDP, and the possibility of heightened U.S.-China tensions over Taiwan adds another tailwind. Those dynamics favor Karman, but the stock remains a relatively risky play because of its valuation. The steep post-earnings decline — despite strong results and guidance — underscores that sensitivity. Analysts still lean bullish. The MarketBeat consensus price target near $117 implies roughly 30% upside. Two targets updated after the earnings report average $126, implying potential upside of more than 40%. |
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