The US — its largest single customer — expects to spend around 3.5% of gross domestic product (GDP) on defence in 2026 and the following years. And other NATO members have pledged to lift their combined defence budgets to 5% of GDP by 2035, up from around 2% last year. It is an increase worth roughly $423bn (£314bn) a year.

As a result, Chemring is strengthening its order visibility, expanding its margins, and setting its earnings up to move much higher. But the market appears not to have factored all these elements into the price as yet.

So, how much could investors potentially make from the price-to-value gap here?

Where’s the growth coming from?

Chemring’s crown jewel is its countermeasures business, which produces the flares, chaff, and advanced decoys that protect military aircraft from missile threats.

Demand here is rising as geopolitical tensions intensify and Western air forces return to operating in contested airspace. The Pentagon and non-US NATO are now in the middle of a multi‑year effort to replenish and upgrade their stockpiles.

Chemring’s second main business pillar is Sensors & Energetics, covering explosive‑detection systems, chemical, and biological threat sensors, and specialist explosives.

This side of the group sits squarely in areas where governments are increasing investment in intelligence, detection, and protective infrastructure. And Chemring is perfectly positioned to benefit from long‑term spending trends here.

A risk to the firm would be any supply‑chain disruption in its highly specialised manufacturing. Another would be any core failure in any of its key products, which could prove costly to fix.

That said, the consensus of analyst forecasts is that the company’s earnings will grow by a very robust 13.2% a year over the medium term. And it is ultimately this that powers any stock price higher over the long run.

Low multiples, higher fair value

Chemring looks undervalued against its competitors on several key stock measures, including the price-to-earnings benchmark. Its 27.9 ratio is second lowest in the group, which averages 34.3. These firms are Northrup Grumman at 23.7, BAE Systems at 33.3, RTX at 38.9, and L3Harris Technologies at 41.2.

To nail down what this means for its fair value, I ran a discounted cash flow (DCF) analysis. This identifies where any stock ‘should’ trade by projecting future cash flows for the underlying business and discounting them back to today.

Analysts’ DCF modelling varies — some more bullish than mine, others more cautious — depending on the variables used. Nevertheless, based on my DCF assumptions — including an 8.9% discount rate — Chemring shares are 26% undervalued at their current £5.45 price. This implies a fair value of around £7.36.

Share prices tend to converge to their fair value over time, so this suggests a potentially terrific buying opportunity to consider today if those DCF assumptions hold.

My investment view

I already hold two stocks in the defence sector — BAE Systems and Rolls-Royce — so adding another would unsettle the risk/reward balance of my portfolio.

But for investors without this concern, Chemring looks an intriguing opportunity to consider.

The post Down 11% and 26% under ‘fair value’! 1 of the best FTSE defence stocks to buy today? appeared first on The Motley Fool UK.

To make matters worse, there are growing fears that the State Pension could be a ticking time bomb.

A combination of lacklustre economic growth, an ageing population, and concerningly high levels of youth unemployment is creating a potential nightmare where tax receipts can’t cover pension payouts.

Consequently, the Office for Budget Responsibility has highlighted that the current trajectory is unsustainable in the long run. And that puts the State Pension at risk for even 40-year-olds today.

But by taking the right steps today, investors can protect themselves and aim to secure a better future. Here’s how.

Building retirement wealth

With the sustainability of the State Pension in doubt, investors who build an additional private pension pot with a Self-Employed Personal Pension (SIPP) could be far better protected in the long run.

Even following a simple index tracker strategy yielding an average of 8% a year could make an enormous difference.

Let’s say a 40-year-old investor in the Basic rate income tax bracket puts £600 each month into their SIPP and intends to retire at age 68. Each deposit gets automatically topped up by 20% through tax relief to £750. And investing this money at an 8% rate for 28 years translates into a £936,423 pension pot.

Following the 4% withdrawal rule, that’s enough to generate a £37,450 retirement income. That’s a significant improvement versus the current State Pension. But investors can potentially do even better.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Aiming higher

By investing exclusively in the best businesses, a portfolio can go on to earn significantly higher returns than 8% a year. And looking back at the last 28 years, a perfect example of this is Chemring Group (LSE:CHG).

Since March 1998, the specialist defence group has delivered a 3,903% total return, averaging 14.1% on an annualised basis. And anyone whose been drip feeding £750 each month along the way is now sitting on close to £3.2m – enough for a £126,770 passive income!

Still worth considering?

With defence spending now entering a new supercycle, Chemring has unsurprisingly seen its order book surge, providing both a structural tailwind and exceptional revenue visibility for the future.

That’s a pretty rare advantage for management, enabling far more intelligent capital allocation for fuelling long-term growth. And it’s why all six institutional analysts tracking this business current rate the stock as a Buy or Outperform.

However, this surge in new orders hasn’t gone unnoticed. And at today’s valuation, it leaves little room for error.

A de-escalation of the geopolitical landscape could result in a spending slowdown and lofty investor expectations being missed. Even if this doesn’t happen any time soon, ongoing investments to expand manufacturing facilities could put downward pressure on earnings, especially if these projects fall behind schedule or suffer from cost overruns.

Nevertheless, with an exceptional track record, Chemring shares merit a closer look, in my opinion, especially for investors seeking to build their own retirement wealth against a potential future cut in the State Pension.

The post The State Pension is unsustainable! I’m buying UK shares to protect myself appeared first on The Motley Fool UK.

Many investors, me included, now have outsized exposure to BAE Systems, with its shares soaring 50% in the last year, and 325% over five. It’s a mighty £50bn business but looks expensive with a price-to-earnings (P/E) ratio pushing 30. Is there better value elsewhere?

Goodwin is a good ‘un

Family run engineering group Goodwin (LSE: GDWN) has a history stretching back to 1883 and has built a global business around precision engineering for the energy and industrial sectors. Today, the FTSE 250-listed group’s defence arm is leading the charge.

I was all ready to buy Goodwin a year ago, then got distracted. Now I feel it’s too late with the shares up a painful 290% over 12 months (painful for me, that is). Over five years they’re up almost 900%, lifting its market cap to £2bn. Investors who think BAE Systems is too expensive will tremble at Goodwin’s P/E though, which is nudging 82.

Expectations are just too high. In December, first-half trading profit almost doubled to £37.2m, but the shares still retreated. Some might consider Goodwin with a long-term view, but it’s too expensive for me.

Chemring is on fire too

Defence-tech specialist Chemring Group (LSE: CHG) is a sluggard by comparison, it shares are up 45% over one year and ‘only’ 85% over five.

They’ve stalled over the last six months though, despite it reporting a 31% increase in pre-tax earnings to £67.7m in December. Chemring’s order book climbed by a fifth to a record £1.34bn. That provides 76% coverage for 2026 earnings.

Lately, the shares have trailed, as mentioned. Its Sensors & Information business has been hit by delays in UK government spending and contract timings, while costs have been higher than expected on certain projects, notably its Norwegian plant. 

Chemring is winning high-margin business in intelligence work, via its Roke division, and that could drive growth in future. With a P/E of 26.5 and market cap of just £1.4bn, I think it’s worth considering for investors looking to diversify away from big gun BAE Systems.

Qinetiq almost looks a bargain

Finally, there’s Qinetiq Group (LSE: QQ), which may tempt bargain seekers like me. It shares are up a modest 28% over the year, and 75% over five. The P/E is easily the lowest here at 19.1. The market cap is £2.7bn.

Last month, Qinetiq forecast organic annual revenue growth of 3%, which is modest for this sector, citing near-term uncertainty over client spending. It nonetheless boasts an order backlog of around £5bn, and a qualified pipeline of £11bn, which says gives it “long-term visibility”. Cash flow is strong too.

Qinetiq has posted some big wins, including mission critical engineering services for Typhoon jets, while its DragonFire laser programme will deliver next‑generation counter‑drone capabilities for the Royal Navy. With laser shots costing as little as £10, this could be a huge growth area given the changing nature of warfare.

Qinetiq strikes me most as worth a further look. But I’d say BAE Systems and Chemring are also worth considering today with a long-term view as the world sadly gets more warlike.

The post 3 red-hot FTSE 250 defence stocks to consider over BAE Systems appeared first on The Motley Fool UK.

It now has a record order book, rising exposure to higher‑margin intelligence work, and multi-year demand driven by NATO rearmament. Yet it still seems to be priced as a low-growth manufacturer of aircraft survivability products, such as flares and chaff radar countermeasures.

Given its rising margins, strengthening cash generation, and strong earnings growth, I believe this price/valuation gap will close sooner rather than later.

So where do I think the shares are headed?

Earnings growth drivers

A risk to Chemring’s earnings (profits) is a major failure in any of its key systems. This could be expensive to rectify and could damage its reputation. Nevertheless, the consensus forecast of analysts is that its earnings will grow by an average 14% a year to end-2028.

This growth is expected to be driven by higher‑margins, intelligence-led work and a pipeline of multi-year defence contracts. Chemring’s intelligence division, Roke, is central to this. In H2 2025, for example, it received over £40m of National Security contract renewals.

And its Defence business won a £20m contract to deliver the next phase of Project ZODIAC for the British Army.  This is an integrated intelligence, surveillance, target acquisition, and reconnaissance system.

Reflecting this shift to higher‑margin intelligence work, Chemring’s 2025 results saw underlying EBITDA increase 9% year on year to £99.7m. Order intake jumped 22% to £792m, and the order book expanded 29% to £1.32bn, both record levels.

How’s its value look against peers?

My starting point in assessing potential stock undervaluation is to compare its key valuations with its competitors. Chemring’s 25.5 price-to-earnings ratio is second bottom of its peer group, which averages 33.2 — so it looks undervalued here. These firms comprise Northrup Grumman at 24.1, BAE Systems at 28.3, RTX at 39.6, and L3Harris Technologies at 40.7.

It also looks cheap on its 3.6 price-to-book ratio against its peer group’s average of 4.7. But its 2.7 price-to-sales ratio looks slightly expensive compared to the 2.6 average of its competitors.

Nailing down the value

A discounted cash flow analysis is my preferred method to pinpoint any stock’s true worth. It uses cash flow forecasts for the underlying business, which are then discounted back to today.

The result is a clean, standalone valuation, unaffected by any over- or undervaluation across a business sector as a whole.

Some analysts’ DCF modelling is more conservative than mine, and some less so. But using the 14% forecast earnings growth — and an 8% discount rate — my modelling shows the shares are 35% undervalued.

Therefore, the fair value of the stock is around £7.88, against its current price of £5.12. This gap is important, as asset prices — including shares — tend to trade to their fair value over time.

My investment view

I already have two stocks in the defence sector — BAE Systems and Rolls-Royce. Buying another would unbalance the risk/reward profile of my portfolio.

However, for investors without this problem, Chemring looks well worth considering, in my view.

I believe its strong earnings growth potential should power its share price higher over time — to close to its fair value. 

The post Down 17%, here’s why this FTSE 250 high-tech defence firm looks a bargain to me now appeared first on The Motley Fool UK.

Goodwin shares fly

One of them already shooting the lights out is family-run engineering group Goodwin (LSE: GDWN). A business that stretches back to 1883, it’s steadily built a global business around precision engineering for the defence, energy, and industrial sectors. Last year, the shares went bananas.

I planned to buy before its preliminary results on 30 July but forgot while sunning myself on a Spanish beach. When I returned, the Goodwin share price had rocketed after preliminary results showed profits jumping 47% to £35.5m on revenue of £220m.

The shares have continued to smash it, boosted by a major US submarine partnership and a special dividend in October. Its shares are up 225% in a year and 695% over five. But with a price-to-earnings ratio of 71, they’re just too expensive for me today. And yes, I’m still kicking myself.

Chemring Group’s a winner too

Shares in Chemring Group (LSE: CHG), which makes defence countermeasures, sensors and explosives, are up 62% in the last year. In December, it reported a 31% jump in pre-tax earnings for the year to 31 October, with orders up a fifth to £1.35bn. The board has ambitious plans to double revenue to around £1bn by 2030.

The dreadful war in Ukraine and wider geopolitical uncertainty are clear drivers, as with all these stocks. A much-longed-for sudden peace deal, supply chain issues, or technical delays could hit growth. However, Chemring’s much cheaper than Goodwin, with a P/E of 27.5, and that gives it the edge for me. Defence sector P/Es are elevated across the board. For example, Babcock’s is at 29 and BAE Systems at 30.

Qinetiq lacks energy

Qinetiq Group (LSE: QQ) is the exception. It looks relatively cheap, with a P/E of 19.2. This is largely down to its relatively disappointing performance. The shares are up a modest 22% in the last year, trailing an otherwise bumper sector.

In November, Qinetiq posted a 4.9% drop in first-half earnings to £900.4m, which it blamed on the restructuring of its North American operations, and some order delays as clients focused on bigger contracts. It still secured £2.42bn of orders, up 133% on last year’s £1.03bn, while underlying net cash flow remained robust at £127.9m.

Qinetiq also has a £316m contract to deliver counter-drone capabilities for the Royal Navy, which is surely a huge growth area as robotic warfare takes off. I’ll need to do more research, but it’s the one I think investors could consider first, due to that modest P/E. It has scope to play catch-up, if it sorts itself out.

Investors should form their own view, which will partly depend on existing holdings. I’m heavily exposed to BAE Systems, so don’t need more sector exposure right now. And I think I’ve missed the boat with Babcock, following its unbelievable run.

The post Are these 3 under-the-radar FTSE 250 defence stocks set to fly like Babcock and BAE Systems? appeared first on The Motley Fool UK.

Take the following high-performing UK shares: Chemring Group (LSE:CHG), Baillie Gifford US Growth Trust (LSE:USA) and Lion Finance (LSE:BGEO). These mid-cap growth stocks have produced an average annual return of 14.8% during the past decade.

The question is, can these FTSE 250 heroes keep delivering stunning returns? I think they can, and believe they demand serious consideration right now.

Defence star

Global defence spending has rocketed since early 2022, lifting Chemring’s share price through the roof. This defence stock’s delivered an average yearly return of 11.9% on a 10-year horizon.

To put that into context, that’s more that double the broader FTSE 250’s corresponding return of 5.5%.

I wouldn’t bet against further stunning price gains as geopolitical tensions grow. Chemring manufactures countermeasures, sensors and explosives. And it’s thriving as Western nations rebuild their arsenals following the post-Cold War lull.

The company reported £488m worth of new orders in the first half of 2025, up 44% year on year at stable exchange rates. To meet future demand, it’s rapidly expanding production — by 2028, total explosives capacity will be 275% higher than it is today.

Despite supply chain strains and competitive threats, I’m expecting further share price growth.

Tech boom

The Baillie Gifford US Growth Trust has delivered an excellent 10.1% average annual return since late 2015. This is down to the stunning performance of the US stock market and — more specifically — the soaring tech sector.

In total, the investment trust holds 58 tech stocks including ‘Magnificent Seven’ star performers Nvidia, Meta and Amazon. It also has stakes in private companies like SpaceEx that would otherwise be off limits to private investors.

Today, more than 35% of Baillie Gifford’s trust is dedicated to tech stocks. This could cause it to underperform during economic downturns. More broadly speaking too, almost 90% of the entire product is dedicated to cyclical and sensitive industries.

Yet as we’ve seen, the trust’s strategy can also lead to supersized returns. I’m expecting it to keep delivering the goods as new tech sectors like artificial intelligence (AI), robotics and quantum computing take off.

Banking giant

Lion Finance has been one of the FTSE 250’s greatest investments since 2015. It’s delivered a 22.5% average annual return since then, more than four times greater than the index average.

The stock traded under the Bank of Georgia name until earlier this year. This reflects its emerging-market-focus which has fuelled spectacular profits (and share price) growth over the last decade. It provides banking services in Georgia, and last year it expanded into Armenia to boost future growth.

Demand for financial services is rocketing across these regions. In the second quarter, Lion Finance’s profit before one-off items rocketed 19.4% year on year, supported by a 22.5% rise in its loan book.

Lion Finance faces significant competition from Georgian rival TBC Bank. Even so, a solid economic backdrop suggests it could keep generating standout returns.

The post 3 FTSE 250 shares to target a 14.8% annual return appeared first on The Motley Fool UK.

Nvidia’s long bull run continues as excitement over the artificial intelligence (AI) revolution grows. But in my view, investors don’t need to flock to the US to find top growth stocks to buy.

The following FTSE 250 companies have soared in 2025 and look set for long-term share price gains. Let’s take a look at them.

The gold stock

Gold has been one of the strongest-performing assets this year, with prices rising a whopping 60% over the period. It’s lifted prices of Endeavour Mining (LSE:EDV) shares by 134% since 1 January, to £35.

The yellow metal’s picking up pace and this week struck new peaks above $4,220 per ounce. Can it continue rising? Scores of City analysts think so, with Bank of America analysts this week joining others in tipping gold prices to take out $5,000 next year.

Such a move would give Endeavour’s profits an added jolt in the arm. Prices are already comfortably above the group’s all-in sustaining costs (AISC) of $1,281 per ounce.

There’s no guarantee gold prices will continue booming, of course. Any retracement could prove devastating for Endeavour’s share price given the leverage factor, where profit or loss movements are exaggerated by precious metal price trends.

But, on balance, I’m confident prices of safe-haven bullion will keep rising. Resurgent inflation, tariff tensions, and a falling US dollar alone are enough reason to expect gold to reach new, substantially greater peaks.

The defence share

The rise and rise of the defence sector has been another one of 2025’s big investing stories. FTSE 250-listed Chemring (LSE:CHG) has increased 71% in value, outpacing the mid-cap index’s broader 7% increase.

Is this a surprise given the increasingly hostile macroeconomic landscape? Probably not. War in Eastern Europe and the Middle East has caused NATO nations to increase spending at the fastest pace since the Cold War. Growing fears over Russian and Chinese expansionism means record arms expenditure should keep climbing.

Chemring’s latest financials underlines the strength of rearmament in the West. Sales were up 42% in the six months to April, while its order book hit new peaks of £1.3bn.

The company manufactures countermeasures, sensors, and explosive devices that are critical on the front line. Its flares and decoys protect ships and aircraft from missile attacks, while its threat detection systems identify dangers in the real world and online.

Chemring’s breadth provides multiple ways for it to benefit from rising defence budgets. It also reduces risk by avoiding reliance on one particular technology to drive earnings.

Today Chemring’s shares trade on a forward price-to-earnings (P/E) ratio of 28.8 times. This is well above the long-term average, and leaves the company at risk of a potential correction if news flow worsens.

Still, I’m confident Chemring can keep climbing in the current environment. I think it’s a top FTSE 250 stock to consider alongside Endeavour Mining.

The post Up 134% and 71%, 2 FTSE 250 index shares are crushing Nvidia! appeared first on The Motley Fool UK.

With this in mind, here are two top growth stocks I think are worth serious attention this October.

Case for the defence

FTSE 250-listed Chemring (LSE:CHG) is capitalising on soaring defence budgets as NATO members respond to growing perceived threats.

The business manufactures sensors, countermeasures and explosives directly to the UK, US, Australia and Norway. This diversified approach helps reduce dependence on one region and provides a multitude of growth opportunities.

Latest financials showed its orders rose 42% in the six months to April. This pushed its order book to record peaks of £1.3bn. As the chart below shows, demand for Chemring’s hardware has been rising steadily in recent years:

And that robust order book provides Chemring with excellent medium-term profits visibility. City analysts expect the business to follow a 17% earnings rise in the last financial year (to October 2024) with increases of 25% and 17% in fiscal 2026 and 2027 respectively.

I think it’s a top growth stock to consider, although supply chain issues remain a notable risk over the period. With a price-to-earnings (P/E) ratio of 28.5 times, its shares trade at a discount to the broader European defence sector.

Move over, gold

Earnings at metal producers can be extremely volatile according to market conditions. Even when mining operations are performing smoothly, profits can tank if prices of the commodity they produce drop.

This is a risk for Valterra Platinum (LSE:VALT), which was spun off from FTSE 100 miner Anglo American in June. But I’m confident its share price can continue soaring given the bright outlook for platinum group metal (PGM) prices.

Like gold and silver, prices of these precious metals are rising sharply as investors seek safe havens. Platinum’s risen 58% in value in 2025, and looks well placed to keep climbing, in my view. Rising inflation, geopolitical instability, weak growth and US dollar weakness are just a few potential drivers in the short term and probably beyond.

Investors can purchase a simple tracker fund to follow metal prices. But purchasing platinum stocks like this can be a more profitable (if higher-risk) option. Because their revenues rise but costs remain largely fixed, profits can rise substantially during bull markets.

City analysts agree with my bullish view on PGM values. And so they expect Valterra’s earnings to rise 57% this year and a further 53% in 2027. With capacity of 4.5m ounces, Valterra is the world’s largest PGM producer and well placed to capitalise on further price rises.

And today it trades on a sub-1 price-to-earnings growth (PEG) ratio of 0.5. This makes it a great option for value investors to consider.

The post 2 top growth shares to consider right now! appeared first on The Motley Fool UK.

Could London’s second-most prestigious share index be about to fall, though? Given mounting uncertainty facing the domestic and global economies, and the FTSE 250‘s high concentration of sensitive growth shares, it’s something I feel savvy investors should at least be prepared for.

With this in mind, here are three top defensive stocks to consider in today’s climate.

A top trust

Real estate investment trust (REIT) Primary Health Properties (LSE:PHP) has a number of qualities that could help protect it during economic downturns. As its name implies, it operates in the highly stable medical sector, letting out properties that are always in high demand, like GP surgeries and diagnostic centres.

Like many other REITs, it also has tenants tied down on long-term contracts. The weighted average unexpired lease term (WAULT) here was 9.1 years as of June, providing excellent earnings visibility. What’s more, almost 90% of its rent roll is funded by government bodies.

Primary Health could be vulnerable to an inflation spike that drives up interest rates. But I think its other defensive qualities make it worthy of serious attention (I own the company in my own portfolio).

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

The food producer

We all need to eat, whatever crisis comes along, economic or otherwise. And so food producers and retailers can be excellent lifeboats in tough times.

One from the FTSE 250 that appeals to me is Premier Foods (LSE:PFD). Many of the products it manufactures, like instant noodles, cooking sauces, and packet soups, are cheap to buy and prepare. This provides extra protection during economic downturns.

On top of this, Premier Foods owns some of the country’s most beloved brands like Bisto gravy, Mr Kipling cakes, and Batchelors soup. These provide revenues with added stability (it’s estimated that nine in 10 UK households have one of the company’s products in their cupboards).

Even though volatile cost prices are a long-term danger, I think it’s a top safe-haven share to consider.

A defence star

Defence industry shares such as Chemring (LSE:CHG) can also serve as effective buffers from stock market volatility. This is especially the case today, as European nations rapidly rebuild their armed forces due to fears over Russian and Chinese foreign policy.

This FTSE 250 business manufactures sensors, explosives, and countermeasures for defence forces worldwide. These include technologies that detect threats and protect combat aircraft. And it sells these to dozens of countries across Europe, North America, and Australasia, which helps to safeguards earnings from weakness in one or two regions.

The outlook for US spending is less clear, posing some uncertainty over Chemring’s future earnings. But I think strong demand from other NATO countries should more than offset this and drive growth.

The post 3 FTSE 250 shares that could survive a stock market crash! appeared first on The Motley Fool UK.

This could indicate that the underlying business is worth less than it was before. Or it could signal that a bargain is to be had.

I took a deep dive into the company and ran the key numbers to ascertain which is true here.

The business

Chemring is a leader in Sensors & Information, and Countermeasures & Energetics products for the defence sector. These are used in chemical and biological threat detection, electronic warfare, and the detection of improvised explosive devices, among others.

It supplies 85% of NATO’s air fleets and 60% of its naval fleets with key defence equipment. The firm is also a precision technology supplier to SpaceX and NASA. And it is on the UK Ministry of Defence’s ‘trusted supplier’ list for a range of cyber defence and other systems.

In June, it bought Landguard Systems, which designs and manufactures advanced radio equipment focused on intelligence gathering, surveillance, target acquisition, and reconnaissance. Chemring expects this deal to boost earnings by the end of October 2026, although it has not specified by how much.

Recent results

H1 2025’s results saw record order intake rise 42% year on year to £488m. This swelled the order book by 25% to £1.304bn, the highest in Chemring’s history.

Underlying profit increased 8% to £27.1m, and underlying profit margin rose to 11.6% from 11.2%. Revenue climbed 5% to £234.3m over the half, driven by 20.4% growth in Countermeasures & Energetics.

A risk here is any major fault in one of its key products, which could be costly to fix and could damage its reputation.

However, Chemring believes it is in a good position to increase revenue to £1bn by 2030, from £510m last year. It bases this on “growing geopolitical uncertainty resulting in increased defence expenditure, particularly across NATO.”

Indeed, June’s 2025 NATO Summit saw members commit to spending 5% of their gross domestic product on defence every year. This compares to an average of 2% last year.

So are the shares a bargain?

The discounted cash flow (DCF) method pinpoints where any stock price should trade, based on cash flow forecasts for the underlying business.

As a standalone valuation, it is also unaffected by under- or overvaluations in the sector in which a firm operates.

The DCF for Chemring shows its shares are 31% undervalued at their current price of £5.33.

Therefore, their fair value is £7.72 – so Chemring is currently in bargain territory.

Will I buy the stock?

I already have holdings in two defence stocks – BAE Systems and Rolls-Royce – so another one would unbalance my portfolio.

However, I think it is well worth considering for investors whose portfolios it suits.

The buoyant defence sector, strong recent results, and undervalued share price are major positives for Chemring.

Perhaps even more compelling to me is that analysts forecast its earnings will increase 15.9% a year to the end of 2027. And it is ultimately growth here that powers any firm’s share price higher over time.

The post Down 11% since June, is this FTSE 250 high-tech defence firm a huge bargain now? appeared first on The Motley Fool UK.