Up 56% in 4 months, have I missed the boat with this FTSE 250 stock?

Has this Fool arrived too late to the party to snap up this flying FTSE 250 defence business to her holdings?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young black man looking at phone while on the London Overground

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

FTSE 250 incumbent Babcock International (LSE: BAB) has seen its share price take off in the past few months. Have I missed a trick or could I still buy shares now with a view to them continuing their ascent? Let’s take a closer look.

Better than expected results

International defence business Babcock is a mammoth in its own right. With over 26,000 employees spanning many countries, it provides a plethora of products and services to its clientele across the defence industry.

As I write, Babcock shares are trading for 422p. Over a 12-month period, they’re up 48% from 284p to current levels. They remained pretty consistent, until June, when they began to climb sharply. They’ve risen 56% to date, from 271p to current levels. A full-year results announcement made for excellent reading, which helped propel the shares upwards.

The investment case

Breaking down the results, Babcock reported that revenue increased by close to 10% compared to the previous year. Furthermore, it managed to boost the coffers with lots of cash, more so than it expected. The business said in previous updates it was looking to solidify its balance sheet, and it has done that.

Looking forward, there are some real bullish aspects that make Babcock shares hard for me to ignore. It has a large order backlog of over £10bn. This could help the business boost performance and growth for years to come.

Finally, Babcock has excellent relationships with major governments, many of whom are the top defence spenders across the globe. It’s worth noting that recent tragic events have sparked fears of further conflicts. Plus, defence spending is nearing all-time highs and shows no signs of slowing down.

Now, I would never look to profit from tragic geopolitical events or war. A speedy and peaceful resolution to all conflicts is something I hope for. Plus, there’s a lot more to defence than just weapons for conflicts.

Moving to the bear case then, Babcock’s recent share price ascent has made the stock look a tad pricey on a price-to-earnings ratio of 27. This is higher than the FTSE 250 index average. Any negative news or a product failure, for example, could send the shares tumbling.

Finally, Babcock does have a fair bit of debt on its balance sheet to tackle. It has managed to make good inroads towards paying this down recently. However, in a high interest environment, like now, debt can be costlier to service. This can impact performance, returns, sentiment as well as growth aspirations too.

What I’m doing now

I wish I owned Babcock shares prior to the results in June. However, as my Mum used to say, there’s no point crying over spilt milk. I’d still buy Babcock shares when I next have some spare cash to invest.

I think Babcock can continue its good run of late. With its wide profile, market position, order backlog, as well as recent excellent cash generation, the future looks bright if you ask me.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Top alternatives to consider as the IAG share price climbs!

I've been bullish on IAG shares for some time, but as the IAG share price pushes upwards from its pandemic…

Read more »

Investing Articles

£50k in savings? Here’s how I’d aim for a second income worth £60,000 a year

Many of us invest for a second income and the prospect of an easier life. Dr James Fox explains how…

Read more »

Investing Articles

The BT share price has surged! Did I leave it too late to buy?

The BT share price has surged since I last covered it. So what's happened and am I too late to…

Read more »

artificial intelligence investing algorithms
Investing Articles

Should I buy Tesla stock for its ‘unused computing power’ and not the EVs?

At 71 times forward earnings, Tesla stock's valued like a technology or AI company. So why is this, and should…

Read more »

Man smiling and working on laptop
Investing Articles

These FTSE 100 shares could rise 15% to 36% in the next year!

Is the market underestimating these top FTSE 100 stocks? Royston Wild explains why analysts expect these two blue-chip shares to…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Should I be watching the Greatland Gold (LSE: GGP) share price?

Recent rallies in valuable metal prices has boosted the Greatland Gold share price, but is there still an opportunity for…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

The abrdn share price is down 23% in the last year, should I buy?

Asset management firms have had a rough time lately, but with the abrdn share price down heavily, is now the…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

If I’d invested £5k in red hot BAE Systems shares 5 years ago here’s what I’d have today

BAE Systems shares have smashed the FTSE 100 for years and Harvey Jones is keen to buy more as they…

Read more »