We have some exciting news to share! The Motley Fool UK has now become The Twelfth Magpie -- an independent, UK-owned company, led by our long-serving UK management team — Mark Rogers, Chris Nials and Heather Adlington. In practical terms, it’s the same team you know, now fully focused on serving our UK readers and members.

Just as importantly, our approach remains unchanged: long-term, jargon-free, and on your side. This site is our new home, and there will be extra tweaks made across the coming few days as we settle in. So if anything looks a little off, please bear with us!

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.

£20,000 invested in BAE Systems shares 4 years ago is now worth…

BAE Systems’ shares have soared since 2022, yet rising NATO budgets are just starting to feed through, so the real good news lies ahead for savvy investors.

| More on:
Arrow symbol glowing amid black arrow symbols on black background.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Twelfth Magpie’s Premium Investing Services. Become a member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more, and get a free 'Best Buy Now' stock!.

£20,000 invested in BAE Systems (LSE: BA) shares on 24 February 2022 — the day Russia invaded Ukraine — would now be worth around £80,668, with dividends included.

The surge in global defence spending since that moment has driven one of the most sustained re‑ratings anywhere in the FTSE 100. It has pushed BAE’s order book, earnings visibility and cash generation to record levels.

Should you buy BAE Systems shares today?

Before you decide, please take a moment to review this report first. Despite ongoing uncertainties from US tariffs to global conflicts, Mark Rogers and his team believe many UK shares still trade at substantial discounts, offering savvy investors plenty of potential opportunities to learn about.

That’s why this could be an ideal time to secure this valuable research – Mark’s analysts have scoured the markets to reveal 5 of his favourite long-term ‘Buys’. Please, don’t make any big decisions before seeing them.

But NATO members have now pledged to lift 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 across non‑US members alone. And as Europe’s largest defence contractor and the world’s sixth‑largest, BAE sits at the centre of this shift.

So is now the time for me to add to my holding in BAE?

Where’s the value going to come from?

Over the long run, earnings growth creates real shareholder value, not short‑term market swings. And the companies that can expand revenues, margins and cash flow consistently are the ones whose share prices tend to benefit most.

A risk to BAE is any delay on major long‑cycle defence programmes, which can squeeze margins and slow cash conversion. Another is a fault in a key product line, which could be expensive to remedy and potentially damage the firm’s reputation.

That said, consensus analysts’ forecasts are that BAE’s earnings will grow an average 12% a year over the medium term. This looks well supported by its recently-released 2025 results. These showed underlying earnings before interest and taxes (EBIT) rise 12% year on year to £3.3bn, while sales increased 10% to £30.7bn.

Free cash flow stayed strong at £2.16bn, despite higher R&D investment, while order intake of £36.8bn drove the backlog to a record £83.6bn. This reflected robust demand across air, maritime, electronic systems and US platforms.

Management forecasts increases this year of 9%-11% in EBIT and 7%-9% in sales. Free cash flow is projected at over £1.3bn.

Are the shares still undervalued right now?

For a business like BAE, forward‑looking relative measures matter far more than backward‑looking ones. This is because defence spending, order visibility and margin guidance all shape future earnings in a way past valuations simply cannot capture.

On the key forward price-to-earnings ratio, the firm’s 28.8 is bottom of its competitor group, which averages 32.4. These firms comprise L3Harris Technologies at 30.4, Rolls-Royce at 31.1, TransDigm at 32.7, and RTX at 35.2.

So despite its huge share price gains since 2022, BAE is still undervalued on this measure.

It is even more pronounced in its forward price-to-sales ratio of 2 against its peers’ average of 4.1. And it also looks a bargain at a price-to-book ratio of 5.7 compared to the 14.3 average of its competitors.

Taken together, these relative measures suggest that even after its powerful multi‑year rally, BAE still trades at a meaningful discount to its global peers.

My investment view

Despite the multi‑year rally in the share price, the stock still looks materially cheaper than comparable defence majors. And with earnings and cash flow now underpinned by multi‑year government commitments, the outlook remains strong.

That is exactly the kind of set-up I look for, so I will add to my holding very shortly. In the meantime, other undervalued high-growth stocks have also caught my eye.

Simon Watkins has positions in BAE Systems and Rolls-Royce Plc. The Motley Fool UK has recommended BAE Systems and Rolls-Royce Plc. 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

Tree lined "tunnel" in the English countryside of West Sussex in autumn
Investing Articles

3 UK shares to consider holding in a Stocks and Shares ISA for a decade

Mark Hartley explains why he thinks these three stocks would make great additions to a long-term Stocks and Shares ISA…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Where should value investors look for stocks in June?

Value investors looking for stocks to buy might be uneasy with artificial intelligence. But other industries look much more attractive…

Read more »

Investing Articles

The latest broker outlooks on Greggs shares look wacky, so what’s happening?

Analyst price targets for Greggs shares are creating some mixed sentiments on where the high-street baker might go next in…

Read more »

Caerphilly Castle, and reflection in the moat.
Investing Articles

2 FTSE 100 dividend stocks that stand out for shareholder returns

Andrew Mackie highlights two FTSE 100 dividend stocks where disciplined capital allocation could continue driving shareholder returns.

Read more »

Senior Adult Black Female Tourist Admiring London
Investing Articles

Just 9% of us can expect a ‘comfortable’ retirement! Could UK shares be the answer?

Millions of Brits could miss out on the retirement of their dreams. Might they avoid this by investing in UK…

Read more »

DIVIDEND YIELD text written on a notebook with chart
Investing Articles

3 passive income shares to consider buying for a 7% yield

Harvey Jones picks out three UK income shares that offer terrific dividends and are trading at tempting valuations. None of…

Read more »

Businessman hand stacking up arrow on wooden block cubes
Investing Articles

How much just £4,160 invested in Rolls-Royce shares 5 years ago is worth now

Rolls-Royce shares have been on a remarkable run of late. Ken Hall takes a look at the key drivers and…

Read more »

Cropped shot of an affectionate young couple posing with a bunch of flowers in their kitchen on their anniversary
Investing Articles

The FTSE 100’s Howden Joinery just made a bold move — should investors care?

Andrew Mackie looks at the FTSE 100’s Howden Joinery and its move into online kitchens, asking what the acquisition means…

Read more »