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Six months ago, BAE Systems (LSE: BA) shares were quietly building momentum.
Investors who spotted the opportunity and committed £19,469 in early December — just shy of the annual ISA allowance — would now be sitting on an investment worth £24,550. That’s a handsome return on paper of more than £5,000 in half a year, before dividends.
For a leading European defence stock that many traditionally think of as a slow and steady compounder, those gains warrant a closer look. So what’s actually going on?
Crunching the numbers
Six months ago the shares were trading at around 1,609p. As I write ahead of Monday’s market open, the price stands at 2,029p — an increase of 26.1%. Based on a £19,469 starting investment, the maths looks like this:
| Starting investment | £19,469 |
| Starting share price (1-Dec-25) | 1,609p |
| Potential shares purchased | 1,210 |
| Current price (1-Jun-26) | 2,029p |
| Share price gain (6 months) | 26.1% (£5,081) |
| Total value today | £24,550 |
That capital gain of 26.1% in six months puts the stock comfortably ahead of the broader FTSE 100 index. But what’s driving such a strong performance from a business that’s been around for decades, and is there still more to come?
From defence stalwart to growth story
With a market cap of £61bn and roughly 111,000 employees worldwide, the defence contracting giant is one of the most significant businesses in the FTSE 100.
I don’t currently own any of its shares, but a market-leading position in European defence and an increasingly favourable global spending backdrop are making me take a much closer look.
The past six months have seen an acceleration of government defence spending commitments and flaring tensions in the Middle East.
That has translated into commercial success for the company. Chief Executive Charles Woodburn highlighted this in the company’s 2025 annual results:
“With a record order backlog and continuing investment in our business to enhance agility, efficiency and capacity, we’re confident in our ability to keep delivering growth over the coming years.”
The numbers support this, with a record £83.6bn order backlog and 2026 sales growth guidance of 7%–9%.
The stock has a modest 1.8% dividend yield versus more income-focused names in the Footsie. Investors have been willing to pay a premium, however, as the stock’s price-to-earnings (P/E) ratio has climbed to 29.8.
Is the valuation still justified?
I keep asking myself the same question on valuation. At 2,029p today, the premium versus the broader market is significant and investors need to ask whether the market has already priced in the positive outlook.
An investment isn’t without risk. A P/E ratio of nearly 30 leaves little room for disappointment such as missed earnings guidance or a slowdown in orders.
Government spending decisions are fundamental to order book growth, which could come under pressure, and supply chain risks are always lurking in the background.
Time to consider buying?
The company is a clear leader in the defence sector and has enjoyed significant recent share price growth as the defence sector has stolen the limelight.
The key question for me is whether the current valuation represents the right entry point. The next earnings release is scheduled for 30 July, and I’ll be watching closely to see what management has to say on orders and margins before making any decisions.
Should you invest £5,000 in BAE Systems right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BAE Systems made the list?
Ken Hall does not hold any positions in the companies mentioned.
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