In 2025, Karman (NYSE: KRMN) was among the hottest stocks in the market. Shares ended the year near $73, rising more than 300% from their IPO price of $22. The new year has been more of a mixed bag. The stock remains up more than 15% in 2026; however, it is down around 25% from its all-time high, reached in January.
The reaction after Karman’s latest earnings report exacerbated this fall, with shares tanking nearly 14% in one day.
Karman is a supplier of mission-critical components for rapidly growing defense technologies. The company's revenue growth in 2025 was among the highest in its industry. The firm also sported impressive margins.
Amid this backdrop, is there an opportunity in shares of Karman? Let’s dive into the firm’s latest report to assess this question.
Karman Posts Top-End Growth with Strength Across Segments
In its fiscal Q4 2025, Karman posted revenue of $134.5 million, or a growth rate of just over 47%. This figure moderately surpassed estimates. For the full year, revenue grew by almost 37% to $471.5 million. Within a group of over 20 U.S. aerospace and defense stocks with market capitalizations above $10 billion, Karman’s full-year growth rate was the second highest. Only Rocket Lab’s (NASDAQ: RKLB) growth of 38% was greater.
Within this, all of Karman’s segments exhibited impressive growth during the quarter.
- Q4 Hypersonics & Strategic Missile Defense Growth: +41.8%
- Q4 Space and Launch Growth: +24.6%
- Q4 Tactical Missiles & Integrated Defense Growth: +77.0%
Meanwhile, the firm posted a full-year gross margin of 40% and an operating margin of 15.5%. These figures were in the top five and top 10, respectively, within the aforementioned group. The company’s operating margin also sits in notable contrast to Rocket Lab's, which was -38% in 2025.
Adjusted earnings per share (EPS) nearly quadrupled year over year (YOY) from 3 cents to 11 cents. Full-year adjusted EPS nearly tripled from 13 cents in 2024 to 37 cents in 2025. The firm’s 11-cent figure in Q4 was in line with expectations.
Adjusted EBITDA margin is one of the company’s preferred profitability metrics. The figure rose 230 basis points YOY in Q4 to 31.2% and rose 10 basis points YOY in 2025 to 30.8%.
Robust Long-Term Defense Spending Is Vital to KRMN’s Outlook
Undoubtedly, Karman is putting up fantastic results, with top-of-the-industry growth and profit margins that exceed companies many times its size. Still, the stock trades at a forward price-to-earnings ratio of approximately 130x. This shows that the market is pricing in several years of high growth and long-term margin expansion.
Clearly, the company is benefiting from robust demand across key defense verticals. However, the key question is how many years this can last. The company’s $800 million backlog provides strong near-term visibility, being 1.7 times higher than its 2025 revenue. However, it does not provide visibility over five to 10 years.
Karman has shown that its products are competitive, evidenced by the combination of its strong growth and sizable margins. However, a highly bullish outlook on long-term defense spending is ultimately key to taking a bullish stance on Karman at its current price.
So, what is Karman saying on this front, and what do external developments indicate?
Karman Touts “Generational” Demand Increase as Conflicts Wage
Karman forecasts an even better year ahead in 2026, projecting midpoint revenue growth of 53%. The company expects its adjusted EBITDA margin to contract moderately to around 29.5% due to recent acquisitions.
The company believes it is in the midst of a “generational” increase in demand across key products. This includes missiles, interceptors, hypersonics, unmanned aerial systems, maritime defense, and space and launch. Karman says, "This is a demand environment that we expect to persist through the end of the decade and beyond.” The company also believes that additional growth vectors like the “Golden Dome” will materialize over time.
Conflicts in Ukraine and the Middle East show that tensions around the world are ratcheting up. The White House is seeking $200 billion in additional funding for the conflict in Iran. Pending congressional approval, this would be around a 24% increase versus the Pentagon’s previously approved $838.7 billion annual budget.
Furthermore, European NATO countries have committed to greatly increasing their defense spending as a percentage of gross domestic product. This rearmament effort remains in its relatively early stages. A potential conflict between the United States and China over Taiwan is another factor to consider.
These dynamics work strongly in Karman’s favor. Nonetheless, Karman remains a relatively risky bet due to its valuation. The stock's large post-earnings drop, despite Karman's strong results and guidance, highlights this.
Still, analysts continue to take a bullish stance on the stock. The MarketBeat consensus price target near $117 implies over 30% upside in shares. Two targets updated after the company’s earnings report are even more optimistic, averaging $126. This figure suggests the stock could rise by over 40%.
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The article "Karman Tanks 14%: Opportunity or Warning for This Defense Darling" first appeared on MarketBeat.
