I can’t help wondering if there’s still an opportunity for me to snap up some BAE Systems (LSE: BA.) shares, or if I’m too late to the party?
Let’s take a closer look.
The best attack is often a good defence
Firstly, it’s worth mentioning that I’m an advocate of peace, and sincerely hope all conflicts, of which there have been many news reports and column inches worth of coverage, come to a peaceful resolution.
However, it’s also worth remembering defence spending isn’t just limited to weapons for war. There are many aspects, including cyber security. This is more important than ever due to technological advancement across the globe.
The shares of BAE, and of other defence firms like Rolls-Royce, have climbed in recent times.
The BAE share price is up a whopping 42% over a 12-month period. At this time last year the shares were trading for 950p, compared to current levels of 1,353p.
More to come?
I think it’s noteworthy to mention a couple of key points. Firstly, BAE is a mammoth and industry-giant in its own right. It possesses a long track record, a wide footprint, and good relationships with all the major defence spenders across the planet. This should stand it in good stead to boost earnings and returns.
Next, according to Statista, global defence spending is currently at all-time highs, and is showing no signs of slowing. With the characteristics mentioned above, there’s plenty to suggest BAE shares could be in for more fruitful years to come.
I personally think BAE Systems shares still offer some value for money. This is despite their excellent run of late. Using two key metrics, the price-to-earnings ratio and price-to-book ratio, each reading is looks good against a peer group average. The P/E ratio comes in at 22, compared to the peer average of 44. The P/B ratio comes in at 3.9, compared to the peer average of 4.7.
Finally, a dividend yield of 2.4% would offer me a passive income opportunity too, albeit not the highest. However, I do understand that dividends are never guaranteed.
Risks and what I’m doing now
Firstly, in the defence business, product failure or malfunction could be catastrophic, and it’s a risk I must be wary of. It could harm reputation, investor sentiment, earnings, and even result in litigation, if it were to occur.
The other issue for me is if the world were to become a conflict-free zone. As I said, this is an ideal scenario from a humanitarian and personal perspective. However, from an investment view, earnings and returns could be dented.
Overall I’m of the belief that BAE Systems shares are still a good buy right now. They could continue their ascent, as the global geopolitical landscape is more complex than ever. However, with more facets to defence spending than weapons, I reckon the business is in a good position to provide me with shareholder value, even away from times of lots of conflicts, like now.
I’d be willing to buy some shares when I next have some available funds to invest.
