It’s fair to say that October 2025 was a great month for a lot of UK stocks. But this wasn’t the case for the BAE Systems (LSE:BA.) share price. It went in completely the opposite direction!
What gives?
Too rich for some
I suspect a lot of this is down to the (frothy) valuation. We’re talking about a price-to-earnings (P/E) ratio of 25 for the current financial year. That’s definitely an ‘eyebrow-raiser’ for me. I can remember when the very same shares changed hands for under 10 times forecast earnings!
Then again, we do seem to live in a very different world these days. The Russia-Ukraine conflict rumbles on, pushing more and more nations to adjust their defence budgets. As one of the biggest companies in this line of work, the latter was always going to be a tailwind for BAE.
Even so, that valuation places a lot of pressure on management to continue delivering the goods. Speaking of which, the next update on trading will land on 12 November. If analysts and investors find anything they don’t like, there could be more pain to come. And of course, the risk of being disappointed is greater if expectations are already raised.
All this makes a number of big director sales in the last couple of months interesting to say the least.
Beyond the share price
On it’s own, that selling activity doesn’t necessarily mean anything. Those most in the know have the option to lock in profits on their investments as much as you and I. And it’s worth noting that the share price had a remarkably good run in September.
At times like this, I also think it’s worth remembering that BAE has been a dividend-chaser’s dream. For decades now, the company has hiked its total distributions every year. Even though the yield now stands at under 2% thanks to the momentum seen in the share price over the last year, that sort of consistency is very reassuring.
Perhaps unsurprisingly given ongoing geopolitical tensions, there’s no interest from short sellers in the stock either. That doesn’t mean the share price won’t fall from here. But it does mean that traders aren’t actively betting this will happen. Take from that what you will.
Nothing to see here…
Assuming a company’s investment case hasn’t changed markedly, I tend not get too worried about short-term movements to its share price.
I think part of the reason BAE’s recent performance sticks out goes back to what I said at the beginning. Plenty of investors will have enjoyed a very lucrative month, even those merely tracking the movement of the market as a whole.
And while that valuation might cause some near-term pullbacks, I continue to believe that this company is worth considering for any portfolio that’s looking for a nice mix of growth and income, even though BAE’s line of work won’t be to everyone’s tastes. The long-term outlook for the FTSE 100 juggernaut continues to look strong and it’s worth considering, in my opinion.
What October’s form does confirm for me is that it’s never a bad idea to hold a bunch of shares in companies from different sectors, rather than just relying on ‘winners’ to continue tearing upwards.
