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I can’t be the only investor wondering whether BAE Systems (LSE: BA.) shares have finally become too pricey to buy.
It’s a top FTSE 100 company, operating in the booming defence sector, and its shares have done brilliantly, soaring 276% over the last five years. But they have slowed lately. Over 12 months, they’re up a modest 19%, plus a trailing dividend yield of 1.77%. Has their moment passed?
Tough choice for new investors
Today (28 August), the BAE Systems share price trades at 2,053p, just a whisker below its all-time highs.
I bought it myself 18 months ago and I’ve made a top-hole return. I have no intention of selling. But is it a bit chancey to buy it today, after such a strong run? I was in two minds, and decided to ask ChatGPT if there was still a buying opportunity here.
I’d never let a chatbot dictate my investment decisions, and I always double check every fact they give me. But I thought it might be funny to get a second opinion.
I informed ChatGPT that with a price-to-earnings ratio of 27.8, the shares looked a bit toppy and it said: “BAE Systems shares aren’t cheap, but there’s a good reason investors are prepared to pay a premium.”
Look at these results
It pointed out that first-half results (30 July) were extremely strong. Sales rose 9% to £15.8bn and underlying operating profit climbed 11% to £1.7bn. “Even better, the company finished June with a record £84billion order backlog. That gives investors something increasingly valuable: visibility.”
The board also raised 2026 guidance. It now expects sales to grow by 8% to 10% and earnings per share by 11% to 13%. “The forward P/E looks closer to 25 times. That makes the valuation look less frightening”, ChatGPT glowed.
It did highlight several risks. “The market already expects a lot, so any disappointment could hit the shares hard. Defence spending could also grow more slowly than investors currently expect.”
That last is a good point. Western governments know they have to spend more, the problem is finding the money. Also, if we do somehow find a path to a more peaceful world (and I hope we do), that future won’t be so amenable to BAE Systems. Sadly, I don’t think we’re there yet.
Is is worth considering?
Overall, ChatGPT seems sold on this one: “BAE isn’t selling a fashionable product that might go out of favour next year. It makes submarines, combat aircraft, missiles, munitions and electronic warfare systems that governments increasingly want and, in some cases, desperately need.”
My view? I wouldn’t call BAE Systems cheap either. But given its growth prospects, it’s not outrageously expensive. Sometimes, paying a little more for a great company is better than waiting forever for the perfect price.
So I think it’s worth considering. And there are other FTSE 100 stock opportunities that I’ve got my eye on…
Should you invest £5,000 in BAE Systems right now?
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Harvey Jones owns shares in BAE Systems.
This story originally appeared on Motley Fool
