Is BAE Systems plc's (LON:BA.) Stock Available For A Good Price After Accounting For Growth?

Looking at BAE Systems plc’s (LSE:BA.) fundamentals some investors are wondering if its last closing price of £5.968 represents a good value for money for this high growth stock. Let’s look into this by assessing BA.'s expected growth over the next few years. Check out our latest analysis for BAE Systems

What can we expect from BAE Systems in the future?

Investors in BAE Systems have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. Expectations from 17 analysts are buoyant with earnings per share estimated to surge from current levels of £0.268 to £0.393 over the next three years. On average, this leads to a growth rate of 10.87% each year, which indicates a solid future in the near term.

Can BA.'s share price be justified by its earnings growth?

BA. is available at a PE (price-to-earnings) ratio of 22.24x today, which tells us the stock is overvalued based on current earnings compared to the aerospace & defense industry average of 20.49x , and overvalued compared to the GB market average ratio of 16.57x .

We understand BA. seems to be overvalued based on its current earnings, compared to its industry peers. But, seeing as BAE Systems is perceived as a high-growth stock, we must also account for its earnings growth, which is captured in the PEG ratio. A PE ratio of 22.24x and expected year-on-year earnings growth of 10.87% give BAE Systems a quite high PEG ratio of 2.05x. This tells us that when we include its growth in our analysis BAE Systems's stock can be considered overvalued , based on fundamental analysis.

What this means for you:

BA.'s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you're a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

1. Financial Health: Is BA.’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
2. Past Track Record: Has BA. been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of BA.'s historicals for more clarity.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.