Tesla (NASDAQ:TSLA) is one of those companies that grabs headlines, but one under-the-radar FTSE 100 stock deserves more coverage than it gets. Engineering and defence specialist Babcock International Group (LSE:BAB) has delivered stunning share price gains over the past five years.
Although investors in Tesla stock would have enjoyed a very handsome return, those who opted for Babcock shares instead could have made more than twice as much! Let’s take a closer look at both businesses and where they could go next.
Tesla’s triumphs
Elon Musk’s electric vehicle giant has been on a volatile ride, but this month it revved up to an all-time high. With a market cap north of $1.5trn, it’s easily the world’s most valuable carmaker. Remarkably, Tesla’s value is almost half that of the FTSE 100’s as a whole.
Robotaxi momentum is the latest development driving the Tesla share price higher. The company’s currently conducting autonomous vehicle tests in Austin, Texas. These trials have progressed to a stage where human supervisors aren’t present, suggesting commercial viability may not be far away. Some noteworthy analysts share this view.
Morgan Stanley predicts there will be a million Tesla robotaxis on the road by 2035, which would be a huge milestone for the business. However, the investment bank recently downgraded its share price forecast to $425 as it believes much of the growth potential is already priced in.
That points to one of the most pressing issues facing the stock — an eye-watering valuation. With a forward price-to-earnings (P/E) ratio above 212, this company’s anything but cheap. The gap between current earnings and future promises raises significant risks for investors. Time will tell whether such a lofty P/E multiple is justified.
I think it’s still a stock worth considering, but investors should tread cautiously. Diversifying with value shares could complement a potential investment in Tesla nicely.
A FTSE 100 gem
Babcock trades at a forward P/E multiple around 21, meaning it’s a lot cheaper than Tesla on this metric. The question is whether its unprecedented share price rally can continue, having risen significantly over 300% in five years.
Babcock’s business spans the military and civilian worlds. Its core operations include maintenance, upgrades, and training for naval vessels, land vehicles, and aviation systems.
Nuclear is the firm’s biggest division. This unit supports submarine fleets and provides construction and decommissioning services for nuclear power stations. Babcock plays a key role in the UK’s Trident deterrent programme and the Hinkley Point C project.
Recent results have been stellar. In first-half results for FY26, revenue increased 7% to £2.54bn, basic earnings per share rose from 25.7p to 33.7p, the interim dividend increased 25% to 2.5p, and a £200m share buyback programme is being executed.
Looking ahead, increased global defence expenditure and Britain’s pledge to boost national security spending to 5% of GDP by 2035 suggest a rosy future for Babcock shares. However, a big reliance on government contracts also entails risks. Political priorities can change.
Challenges also come with the long-term, complex projects that Babcock undertakes. Cost overruns, delays, or performance issues could hurt the group’s bottom line and, in turn, the share price. However, these risks shouldn’t take the spotlight away from Babcock’s undeniable successes. There are many good reasons to consider buying this FTSE 100 outperformer.
