The BAE share price has soared 51% this year! Could it go even higher?

Whereas we now have seen plenty of inventory market turbulence thus far this yr, one firm that has shrugged it off is BAE Methods (LSE: BA). The BAE share value has soared 51% for the reason that begin of 2025. Meaning the share has greater than tripled over the previous 5 years.

For the usually staid-seeming defence sector, that may be very sturdy efficiency.

Can it proceed – and in that case, ought I to think about including the share to my portfolio?

BAE Methods has the wind in its sails

The defence atmosphere has modified considerably over the previous few years, main many European governments to spice up their budgets. That has been excellent news for defence contractors throughout the board, together with BAE Methods.

Final yr, for instance, the UK defence big reported a 14% progress in revenues. In the meantime, internet revenue was up 5% and got here in not far under £2bn.

The corporate expects gross sales and underlying earnings per share to rise by mid single to low double percentages this yr.

A buoyant finish market won’t all the time imply a discount

However whereas defence spending is stronger than earlier than, I do have some considerations.

We now have seen up to now that when occasions are sturdy, defence contractors can get gung ho making long-term offers that then change into costly for them to ship, as prices rise over time.

Checked out in that gentle, I’ve blended views on BAE’s order backlog. It ended final yr at a report excessive of £78bn. That’s good because it exhibits that the corporate has a number of work to maintain it absolutely occupied. Nevertheless it might additionally tie the corporate up for years to return and a few of these orders could turn into much less worthwhile than they give the impression of being now when they’re lastly delivered.

On high of that, BAE Methods has a robust world presence, together with within the US. Ongoing tariff uncertainty might distract administration consideration from progress and it might additionally eat into the underside line.

Contemplating that, the present BAE share price-to-earnings ratio of 27 appears to be like costly to me. I feel it gives an inadequate margin of security for me if even a few of these dangers come to cross.

Momentum might proceed

That doesn’t imply that the BAE share value won’t go larger from right here. The latest momentum factors to the truth that many traders are excited concerning the agency’s prospects. That would assist pushing the share value up. A giant contract win or different optimistic information might additionally enhance the share value.

However as an investor, I’m focussed on fundamentals not momentum. Primarily based on what we at present know concerning the agency’s business outlook, I feel the share value is dear. I’ve no plans to take a position.