Aerospace Defense Plays: Loar vs. Karman—Which Growth Story Offers the Best Risk-Adjusted Upside?

The global aerospace and defense sector is on fire, fueled by soaring government spending and technological advancements. For investors, the question is clear: Loar Holdings (LOAR) or Karman Space & Defense (KARM)? Both companies are positioned to capitalize on a $1.3 trillion defense market, but their valuations, risk profiles, and execution trajectories diverge sharply. Let’s dissect which stock offers the most compelling risk-adjusted upside.

Valuation: A Tale of Two Multiples

The first battleground is valuation. Both stocks trade at premiums, but Loar’s sky-high multiples raise red flags.

• Loar’s Premium Price Tag:
• EV/EBITDA: 74.3x (TTM as of May 2025) vs. a defense industry average of 14.8x.
• P/E: 404x (trailing) and 142x (forward), reflecting investor euphoria over its 19.6% revenue growth and tripled net income guidance.

• Risk: A stumble in execution could trigger a brutal correction, given its reliance on optimistic 2025 forecasts.

• Karman’s More Reasonable Valuation:

• EV/EBITDA: 31.2x (using 2025E EBITDA guidance), closer to the industry’s upper range.
• P/E: 303x (2024 net income), but this figure is inflated by one-time IPO costs. Analysts project a drop to ~100x if 2025E net income grows proportionally.
• Risk: High leverage (debt-to-EBITDA of 2.07x) complicates its ability to weather unexpected headwinds.

Verdict: While Loar’s growth justifies some premium, Karman’s valuation offers better downside protection.

End-Market Exposure: Defense Dominance vs. Diversification

Both companies are defense darlings, but their market focus differs.

• Loar’s Playbook:
• Defense Gold Mine: 50% of revenue comes from high-margin defense contracts, including U.S. military systems.
• Growth Catalyst: A $842.7B U.S. defense budget and partnerships with Boeing and Lockheed Martin.

• Risk: Overexposure to geopolitical shifts or budget cuts.

• Karman’s Diversified Approach:

• Dual Markets: 65% of revenue from defense, with 35% in commercial aerospace (e.g., satellite launches).
• Funded Backlog: $579.8M (up 35% YoY) ensures visibility for years.
• Risk: Commercial projects face execution hurdles, such as delays in satellite deployments.

Verdict: Loar’s singular focus on defense delivers higher growth certainty, but Karman’s diversified backlog reduces dependency on a single sector.

Execution Risks: The Elephant in the Room

Valuation and markets matter, but execution is king.

• Loar’s Strengths:
• Profitability: Gross margins expanded to 36.3% in 2024, signaling operational efficiency.

• Execution Track Record: Consistently beat earnings expectations since 2023.

• Loar’s Weaknesses:

• Valuation Sensitivity: A 5% miss on 2025 net income would send its P/E soaring to 150x, risking a sell-off.

• Regulatory Risks: U.S. defense contracts face scrutiny over cost overruns.

• Karman’s Strengths:

• Funded Backlog: Its $579.8M backlog (vs. $423M 2025 revenue) provides a safety net.

• IPO Capital: $173M from its February 2025 IPO funds R&D and M&A.

• Karman’s Weaknesses:

• Debt Burden: $351M in debt post-refinancing strains liquidity if revenue growth stalls.
• Operational Complexity: Balancing defense and commercial projects demands flawless execution.

The Bottom Line: Which Stock Wins?

Loar is the aggressive growth pick, riding a wave of defense spending and strong execution. Its valuation is extreme, but if it delivers on 2025 guidance, it could justify its price.

Karman is the value-oriented play, offering a more sustainable multiple and a diversified revenue stream. Its debt is a concern, but its backlog and IPO capital provide a cushion.

Final Recommendation: For risk-adjusted upside, Karman Space & Defense (KARM) edges out Loar. Its valuation is more grounded, its backlog reduces execution risk, and its commercial diversification offers a hedge against defense market volatility.

Investors seeking explosive growth should still consider Loar, but only with strict stop-loss discipline. For most, Karman’s blend of growth and valuation sanity makes it the safer, smarter bet.

Act now—defense spending isn’t slowing, and neither are these companies.