After rising 125% in 5 years, what’s next for BAE Systems shares?

This Fool wants to look forward to what the next five years could have in store for BAE Systems shares. Does the future look positive?

| 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.

Smart young brown businesswoman working from home on a laptop

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.

The last five years have seen BAE Systems (LSE: BA.) string together a solid performance. During that time, its shares are up 125.4%.

That puts the FTSE 100 to shame. It’s up just 10.4% during the same period. If I had invested in BAE Systems instead of buying an index tracker, I’d be a very happy investor.

During that spell, it has posted record turnover while profits have also steadily risen. We’ve faced some gruelling economic conditions over the past couple of years. So that’s mightily impressive.

Should you invest £1,000 in B&M right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if B&M made the list?

See the 6 stocks

But what could the next five years have in store for the stock? And is it time for investors to consider buying some shares?

Created with Highcharts 11.4.3BAE Systems PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Latest results

To answer that, I’m going to start by looking at its latest results. That should give me a guide on how the business is faring right now.

For the first half of the year, BAE Systems posted a pretty strong performance. Sales grew 13% to £13.4bn. Underlying earnings before interest and tax (EBIT) grew by the same amount to just below £1.4bn. Underlying earnings per share (EPS) were up 7%.

However, free cash flow fell £851m to £219m. Even so, CEO Charles Woodburn said the company is “well positioned for sustained growth in the coming years”. That’s why the business now expects full-year sales to rise by 12-14%.

Strong prospects

While its order intake fell slightly for the first six months of the year, there’s plenty to suggest that demand will rise in the years ahead as Woodburn alluded to.

Increased defence spending has helped drive its share price higher over the last couple of years and it’s expected to keep climbing.

NATO members have committed to increasing their defence spending to at least 2% of gross domestic product (GDP). BAE Systems will be a major beneficiary of this new wave of spending.

What’s more, the UK has said it will spend 2.5% on its GDP on defence spending. While that was first implemented by former Prime Minister Rishi Sunak, Keir Starmer has previously said he will uphold this.

Then there are geopolitical tensions. The war in Ukraine continues. There’s also the Israel-Hamas conflict.

The risks

That said, should the wars end soon, as everyone hopes, then spending from key nations could decline.

What’s more, while Starmer has previously promised the 2.5% target, there will now be a Strategic Defence Review. Some believe it will reveal that spending will come in less than 2.5%.

Predictions

I also want to look at what the experts think the stock could do. It’s worth noting that analysts’ forecasts can be wrong. However, I still like to use them as a guide.

For the 15 analysts offering a 12-month target price, they’ve an average target of £14.54. That represents a 14.6% premium to its current price. The highest target’s £16. The lowest is £13.30.

One to consider

All in all, I think BAE Systems is in a strong position to deliver solid returns in the next five years. However, I’m not expecting it to put up a similar performance to the previous five years. Nevertheless, I think we could see share price growth.

I reckon it’s a stock that investors should consider taking a closer look at. That’s what I’ll be doing.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

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.

Charlie Keough 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

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »