Kraken Robotics Stock Is Down 55% — Is September The Mon…

Kraken holders have felt growing pains

Kraken Robotic is a leading provider of subsea batteries for uncrewed underwater vehicles (UUVs), synthetic aperture sonar (SAS) for ocean-floor mapping, and other subsea intelligence and navigation solutions. Through its acquisition of Covelya, the company has also significantly broadened its product portfolio and expanded its capabilities in positioning, scanning, and overall subsea robotics.

While the acquisition looks promising, the combined company still has a lot to prove. Kraken has yet to report a quarter that includes Covelya’s business contributions, and its own revenue increased just 4% year over year to CA$27.3 million in the second quarter.

Additionally, management indicated that this year’s growth will be very heavily weighted toward the fourth quarter. That sets up a potentially tough situation for investors — as holders may be kept waiting into next year for the vital Q4 report that will shed more definitive light on the company’s growth story. On the other hand, there are long-term expansion opportunities here that still look quite compelling — and recent pullbacks for the stock could present a worthwhile entry point for patient investors.

Playing the waiting game

As a business that primarily provides products and services to defense and offshore energy customers, Kraken’s business performance is prone to lumpy revenue recognition. Even so, it’s not surprising that the company’s sales and earnings performance in Q2 didn’t do much to drive excitement among investors.

Were it not for the CA$1.5 million reversal of previously recognized product revenue due to “a change in scope associated with an integration project,” sales would have come in at CA$28.8 million — up 9% year over year. Meanwhile, the business posted a CA$7.5 million loss due to provisioning for probable costs related to arbitration over a 2017 supplier contract. Non-GAAP (adjusted) net income came in at CA$0.8 million — down from CA$1.3 million in the prior-year period.

For a company with a market capitalization of roughly $1.4 billion, there’s still strong growth priced into Kraken stock even after big pullbacks this year. The company’s Q2 report didn’t deliver on some of the visibility investors were looking for, and management’s comments about revenue timing set up a potentially agonizing wait for a fourth-quarter report ly to arrive in February or March of next year.

Kraken Robotics Stock Quote

OTC: KRKNF

Kraken Robotics

Today’s Change

(0.27%) $0.01

Current Price

$3.71

Key Data Points

Market Cap

$1.4BMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.

Day’s Range

$3.61 – $3.74

52wk Range

$2.45 – $8.13

Volume

379.2K

Avg Vol

938.1K

Gross Margin

51.30%

Looking past Kraken’s unexciting Q2 report

Kraken’s Q2 report did actually arrive with some encouraging news for investors. For starters, the company announced it had entered into a new long-term master supply agreement (MSA) to supply batteries to an additional XL-UUV customer. The word “additional” is particularly significant here because it suggests the company is scoring contract wins in addition to the underwater drone build-outs with Anduril, which are central to its growth story.

Anduril is now ramping up production of its Dive-LD and Dive-XL underwater drone platforms, which feature subsea batteries and other technologies provided by Kraken, with production at its Rhode Island factory expected to reach full capacity by the end of 2027. If that proves to be the case, Kraken will ly post explosive sales growth next year — and news of long-term MSAs with other battery customers seems to bode very well for the demand outlook.

At a time when high-profile artificial intelligence companies, including Nvidia and Micron Technology, are posting stellar sales and earnings growth and AI stocks as a category are playing such a huge role in shaping the overall market, Kraken Robotics appears decidedly out of step with what’s hot right now. Growth has been uneven, and investors will have to wait to get a read on the extent to which the Covelya acquisition has been successful. Alternatively, the company appears to have the pieces in place to power strong new growth phases — and I think the stock could deliver big upside for patient investors.