Could this FTSE 250 stock double in value by 2030?

Dr James Fox believes this FTSE 250 stock has a lot of potential and could possibly double in value. However, geopolitics remains a significant variable.

| More on:

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.

Chemring (LSE:CHG) is a FTSE 250 company experiencing some whirlwind growth right now.

The Romsey-based company, which has a market cap of £1.02bn, specialises in providing advanced technology solutions for defence, security, and safety markets.

The company’s product range includes countermeasures, sensors, and energetic systems designed to protect military personnel and assets.

Understandably, the company has been performing rather well of late with conflict raging in Europe and the Middle East.

[fool_stock_chart ticker=LSE:CHG          

Business is booming

In the six months to 30 April, Chemring’s order book surged 39% to a record £1.04bn. Revenue increased by 8% to £223.4m, bolstered by 19% growth at its Roke business unit — Roke provides technology, engineering, and advisory services to governments.

However, the group’s countermeasures segment in Tennessee experienced weather-related challenges, delaying the ramping up of its automated facility, offsetting gains in specialist energetic materials.

Nonetheless, there are clearly positive trends pushing the company forward.

CEO Michael Ord noted the ongoing geopolitical tensions that are driving a rearmament upcycle, providing long-term growth visibility and opportunities for strategic partnerships through the decade.

The firm wants to see sales quadruple to nearly £1bn by 2030 and the current environment is making that possible.

Chemring says that NATO nations are reacting to war in Ukraine, Gaza, and an increasingly assertive China by spending more on defence.

Much of the spending related to Ukraine relates to replenishment after NATO nations have donated existing stock to the war effort.

What do analysts think?

It’s not just Chemring’s CEO who is positive about the future – analysts tend to be as well. There are currently five ‘buy’ ratings and one ‘underperform’ rating for the stock. The average share price target is £4.39, inferring that the stock is trading at an 18.8% discount.

A stock to watch

I have no doubt that Chemring is a stock to watch over the coming years. In addition to broad market trends, as mentioned above, it’s in prime position to benefit from AUKUS Pillar 2. AUKUS Pillar 2 concerns the development of advanced technologies, rather than nuclear submarines, which is Pillar 1.

Chemring has facilities in all three of the AUKUS countries — Australia, UK, US — and its operations fit within the scope of projects defined under Pillar 2, notably the working groups on electronic warfare and cyber capabilities.

It’s also not particularly expensive compared with peers BAE Systems. It trades at 19.8 times earnings for 2024, 17.8 times earnings for 2025, and 16 times earnings for 2026. BAE trades at 19 times forward earnings.

However, defence stocks can bounce up and down on geopolitical developments. A Labour government will spend more on defence, they say, and a Trump presidency will force European to spend more on defence. These are positive catalysts.

An end to Russia’s war in Ukraine, a reformist Iran, and a less assertive China. These could impede the long-term outlook for Chemring.

Personally, I’d expect to see the stock slowly push higher over the coming years. But that’s under the current assumed scenario, which includes a Trump government and high tensions.

However, in a bull case scenario, where sales hit £1bn and tensions bubble over, I can definite see this stock doubling in value by 2030.

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.

James Fox has no position in any of the shares mentioned. The Motley Fool UK has recommended BAE Systems. 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

Person holding magnifying glass over important document, reading the small print
Investing Articles

Down 10% in a month! What’s gone wrong with the BAE Systems share price?

Harvey Jones suspected all was going a bit too well for the BAE Systems share price. Things went wrong immediately…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Are BT shares still a bargain after climbing 30%?

BT shares are finally showing signs of life after years in the doldrums. Harvey Jones thinks this may point to…

Read more »

Investing Articles

£10k in an ISA? Here’s how I’d aim to generate a ton of passive income

I dream of escaping the shackles of a salary with financial independence and a steady stream of passive income. Here’s…

Read more »

Investing Articles

Are Burberry shares a bargain or a value trap?

Appearances can be misleading in the stock market. Shares that look like a bargain can turn out to be a…

Read more »

Investing Articles

How I’d target £17,673 passive income with just £100 a week

Our Foolish writer explains how he’d build a portfolio capable of generating a life-changing passive income with limited capital.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

If I’d put £20k into a FTSE All-Share tracker fund 10 years ago, here’s what I’d have now

A lot of UK investors have money in FTSE All-Share tracker funds. Here, Edward Sheldon looks at how these products…

Read more »

Investing Articles

How I’d invest £10k in a SIPP to target £28,000 annual passive income

Investing just £10k today in a SIPP could be the key to a chunky retirement income in the long run.…

Read more »

Investing Articles

How I could earn a second income worth £35,000

Millions of us invest for a second income. Our writer explains how he's making it work and shares tips for…

Read more »