A value stock that could represent a bargain at current levels is Chemring Group (LSE: CHG). Is now a good time to buy some shares for my holdings?
Defence products manufacturer
Chemring is a specialist defence business producing decoy measures to protect air, sea, and land platforms against missile threats. The business employs 2,000 people across 14 operations throughout the world.
So what’s happening with Chemring shares at present? As I write, they’re trading for 291p. At this time last year, they were trading for 298p, which is a 2% drop over a 12-month period. Although the shares have only fallen slightly over a year, due to market volatility, they have fallen below current levels a few times in the past few months. There is every chance the shares could dip again, making them even more attractive.
A value stock with great fundamentals
Chemring has an excellent position in its market, in my opinion. It is the leading provider of the world’s countermeasure technologies with over 50% of the market share. As well as this, it has a diverse offering through its other products, including explosives, sensors, and cyber warfare expertise as well.
Next, Chemring could benefit from increasing levels of defence spending. This level of spending has increased since the unfortunate events in Ukraine, although an easing of the current tensions would be most welcome, generally speaking. However, this increased spending throughout the world could boost future earnings and investor returns.
Moving on, Chemring shares look good value for money on a price-to-earnings ratio of 16. This is below the industry average of close to 22, which makes me consider it a value stock. In addition to this, Chemring’s current dividend yield stands at 2.5%. I believe this could rise in line with earnings. However, I do understand that dividends are never guaranteed.
Finally, Chemring has an excellent record of performance historically and more recently. Although I understand past performance is not a guarantee of the future, I can see it has increased revenue for the past two years and profit for the past four years.
The company recently said that its order book has reached levels not seen for the past 10 years. This is pleasing to hear and could represent the potential for boosted future earnings and shareholder returns.
Risks and what I’m doing now
One of the biggest risks for companies such as Chemring is that of product failure. This could be catastrophic for a few reasons. It could not only adversely impact performance and investor returns, it could also dampen investor sentiment and send shares tumbling. Furthermore, competitors may be able to capitalise and increase their own market share.
Another factor I’ll take into account is that of heightened spending during times of geopolitical tension, like now. Could the current Ukraine war have caused a knee-jerk reaction to defence spending? Could this appetite cool down if tensions were to ease? I’ll keep a close eye on Chemring’s future performance here.
Overall, I like the look of Chemring and believe it is a great value stock at present. The shares look cheap, and recent and historic performance has been good. A solid order book coupled with a dominant market position solidify my bullish stance on the shares.
I’d happily buy Chemring shares for my holdings when I next have some cash to invest.