Should You Revisit General Dynamics After Strong Defense Spending Pushes Shares Up 24% in 2025?

If you’re debating what to do with your General Dynamics shares right now, you’re not alone. The stock has been on a tear this year, racking up a 23.8% gain since January that easily outpaces many of its industrial peers. While the last week was a touch softer with a -1.0% dip, and the broader market has seen its fair share of volatility, long-term holders have been handsomely rewarded. Looking back five years, General Dynamics stock is up a remarkable 161.7%.

Recent headlines about strengthening global defense budgets and shifting geopolitical dynamics continue to fuel investor enthusiasm, with many seeing these developments as supportive for General Dynamics’ future growth. Short-term pullbacks like the one seen in the past week are not uncommon after such a strong run, but they tend to attract value-oriented investors taking a fresh look at the stock’s fundamentals.

Speaking of value, we’ve run General Dynamics through a rigorous checklist of six valuation measures, and the company comes up as undervalued in four out of six, giving it a healthy value score of 4. That kind of score suggests the stock could offer more than just momentum for new buyers, especially when viewed alongside its long-term performance.

Now, let’s dive into the key methods analysts use to judge whether General Dynamics is actually undervalued, and keep in mind there’s an even more insightful way to understand valuation waiting for you at the end of this article.

Why General Dynamics is lagging behind its peers

Approach 1: General Dynamics Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) approach estimates a company’s true worth by projecting its future cash flows and then discounting those figures back to today’s dollars. This method helps investors see past short-term market swings and focus on long-term value rooted in actual cash generation.

For General Dynamics, the latest reported Free Cash Flow stands at $3.94 billion. Analysts forecast this figure will steadily increase, reaching $5.20 billion by 2029. While analyst estimates generally extend to five years, Simply Wall St extrapolates this out to a ten-year cash flow projection to provide a broader picture. Over the next decade, General Dynamics’ cash flow is expected to move into the $6.53 billion range by 2035, suggesting a consistent upward trajectory for the business.

This analysis finds an estimated intrinsic value for General Dynamics at $377.10 per share, which is about 14.3% higher than the current share price. In plain terms, the DCF model indicates the stock is undervalued at present.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for General Dynamics.

Our Discounted Cash Flow (DCF) analysis suggests General Dynamics is undervalued by 14.3%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: General Dynamics Price vs Earnings

The Price-to-Earnings (PE) ratio is a favored valuation metric for profitable companies like General Dynamics because it directly relates the share price to the company’s bottom-line profits. It offers a clear and quick snapshot of how much investors are willing to pay for each dollar of current earnings. This makes it particularly useful when the company is generating consistent and growing profits.

Growth expectations and risk play an important role in determining what a "normal" or "fair" PE should be. Faster-growing companies and those with more predictable earnings can justify a higher PE ratio. Higher risk or slower growth usually result in a lower PE.

General Dynamics currently trades at a PE ratio of 21x, which is well below the Aerospace & Defense industry average of 38x and also under its peer average of 36x. While these comparisons are helpful, Simply Wall St’s proprietary "Fair Ratio" provides a more accurate benchmark. This Fair Ratio adjusts the standard PE by considering General Dynamics’ earnings growth, profit margins, overall industry, market capitalization, and key risks. This gives a more tailored sense of what investors should be paying for the stock.

According to Simply Wall St’s Fair Ratio, General Dynamics deserves a PE of about 25.5x in today’s environment. Since its current PE of 21x is notably below this level, the shares appear undervalued when accounting for all relevant growth and risk factors, not just headline comparisons.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your General Dynamics Narrative

Earlier we mentioned there is an even better way to understand valuation, so let’s introduce you to Narratives, a new, smarter way for investors to shape their decisions on General Dynamics and any other stock.

A Narrative is simply your personal story of the company’s future, connecting what you know or believe about General Dynamics with real numbers, such as future earnings or margins, and using those inputs to calculate a fair value. Instead of just relying on averages or analyst consensus, you build your own view of what is likely to happen and see in plain terms what General Dynamics is worth. This way, your investing is not just about numbers, but about your perspective powering your decisions.

Narratives are easy to create and review inside Simply Wall St’s Community page, used by millions of investors. They help you decide when to buy or sell by comparing your Fair Value to the current share price, and are dynamically updated whenever new news or results arrive, so your insights always stay fresh.

For example, one investor’s Narrative might project strong defense spending and digital transformation, arriving at a fair value of $370 per share. Another may worry about operational risks and set theirs at $280. These are two stories with two outlooks and potentially two different actions as market conditions change.

Do you think there's more to the story for General Dynamics? Create your own Narrative to let the Community know!

This article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned.

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