’ ( ) share price has more than doubled since Russia invaded Ukraine on 24 February 2022. In the last 12 months, it has gained around 57% from its 10 July low. This underlines a key point in stock investing to me: just because a share has risen in price does not mean there is no value left in it.
It may be that the company is worth more now than it was before. Or that the market is just playing catch-up with the value of the firm. In fact, in my experience, a share may be worth much more than even the elevated share price reflects.
I think it certainly seems to be the case for BAE Systems. The UK defence giant currently trades on the key (P/E) ratio stock valuation measurement at 22.5.
So it is very undervalued on this measure against its peers, the average P/E of which is 45.3. The same applies to the key (P/B) ratio.
The company trades at a P/B of 4, against an average for its competitors of 4.7. Therefore, on both key measures the shares seem like a bargain.
The world has seemingly become a much more dangerous place since the invasion of Ukraine. The political consensus in the West is that if Russia succeeds in its war, it will keep moving westwards. This is why in February, NATO members vowed to increase their defence spending to 2%+ of their gross domestic product.
Germany’s IFO Institute calculated that €1.8trn must be spent to compensate for 30 years of under-investment in European defence. Much as we do not want war, the reality is that defence firms benefit fro.