It’s been an incredibly challenging year for investors in defence company Chemring (LSE: CHG). That’s because its profitability has come under severe pressure, while its share price has slumped by over 40%.

Although its profit for 2015 was in line with expectations, those expectations had been significantly lowered in October due in part to several key export orders in the sensors and electronics segment taking longer to materialise than had been anticipated. Furthermore, Chemring’s energetic systems segment was hurt by a contract termination in the final quarter of the year, as well as delays to a key order for 40mm ammunition.

However, things could be about to improve for Chemring. It’s in the process of conducting a rights issue and this should help to shore-up its financial standing, thereby allowing it to progress with its strategy. Although slow recovery in the global defence market is expected in 2016, the US economy continues to improve and defence spending is likely to stabilise over the medium term. With the US being the biggest military spender in the world by far, this bodes well for Chemring.

With the company trading on a forward price-to-earnings (P/E) ratio of just nine, it offers substantial upward rerating potential. While it may prove to be volatile, a share price rise of 25% is very much on the cards over the medium term.

Too expensive for now?

Also struggling to deliver improved returns is Rolls-Royce (LSE: RR). Its shares have been hurt by a handful of profit warnings within the last couple of years and looking ahead, it would be of little surprise for Rolls Royce’s share price to come under further pressure following its fall of 44% in the last year. That’s because Rolls-Royce is forecast to report a decline of 43% in its earnings in 2016, which is likely to cause investor sentiment to worsen.

Unlike Chemring, Rolls-Royce still trades on a premium valuation, with its shares having a forward P/E ratio of 17.2. This seems to hugely overvalue the company and its near-term prospects, even though it has a highly capable management team that’s likely to turn around its performance in the long run. However, implementing a major restructuring will take time and generating efficiencies could be more challenging than the market anticipates. As such, it may be wise to await a much lower share price before buying Rolls-Royce.

Slow progress

Meanwhile, shares in Artilium (LSE: ARTA) have also disappointed in recent months, with the telecoms software and solutions company recording a decline of 18% in the last six months alone. This includes a fall of 2% following a rather disappointing update released today. It shows that the company, while making progress, is doing so at a slower-than-expected rate.

In fact, delays in the implementation of a number of projects caused revenue for the six months to 31 December 2015 to be around €4.3m, with sales for the full year expected to come in at between €10m and €11m.

While disappointing, Artilium continues to make steady progress with regards to its order book. Furthermore, it believes that there are additional opportunities within the machine-to-machine market from which it can expect further growth. However, due to the delays, it may be a stock to watch rather than buy at the present time.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.