Because the center of February, shares in defence firm BAE Techniques (LSE: BA) have leapt. In actual fact, in simply seven weeks, the BAE share price is up by 30%.

The agency has area of interest capabilities and a strong order e book at a time when defence spending in its core markets seems set to extend considerably.

Taking the attitude of a long-term investor, then, might BAE Techniques shares doubtlessly nonetheless be value contemplating even on the present price?

Valuation seems excessive to me

The corporate presently trades on a price-to-earnings (P/E) ratio of 24. That appears excessive to me, although it’s a part of a wider pattern of enormous British defence contractors seeing their valuations enhance considerably of late. Rolls-Royce, for instance, is buying and selling on a P/E ratio of twenty-two.

The BAE share price has tripled over the previous three years. In contrast, final yr’s income was 36% greater than in 2020 and web revenue was up by 50% over that interval. So, whereas each of these numbers are spectacular, share price development far outstripped them.

That means to me that traders are contemplating the longer term outlook for the enterprise when deciding what its shares are value.

However defence is an business suffering from price overruns, altering briefs, and surprising delays. So making an attempt to know the longer term prospects of a enterprise like BAE can finish up being a extremely subjective exercise.

Only one instance makes the purpose: tariffs.

As new research from A J Bell and Bloomberg reveals, BAE has 59% of its services within the US – and that single market accounts for 46% of its gross sales. So, shifts in US tariffs might negatively impression BAE’s profitability in a major method.

2025 must be sturdy

Even permitting for that, I anticipate the enterprise to carry out effectively this yr.

Its present steering for 2025, presuming the identical trade fee as final yr (itself a danger), foresees gross sales development of seven%-9% and underlying earnings per share development of 8%-10%.

I believe these numbers look completely strong, if they’re achieved. Nonetheless, they’re removed from transformative.

Keep in mind the latest sturdy development within the BAE share price in addition to the P/E ratio within the mid-twenties. For me, that kind of valuation is extra per an organization in very sturdy development mode fairly than one that’s excessive single-digit share development on key metrics like underlying earnings per share, whilst its business undergoes a requirement growth.

In the meantime, BAE factors to its “record order backlog”.

On one hand, I see that as constructive: orders are flowing in. Then again, although, too massive a backlog generally is a downside for defence contractors.

The longer orders take to fulfil, the much less pleased clients could also be – and that may be problematic not solely when it comes to future order circulation, but additionally generally ends in monetary penalties.

I anticipate BAE to have a powerful 2025 and reckon that would proceed in years to return. However I believe the BAE share price already builds in that expectation. For the share to maneuver up markedly greater from right here I believe would take stronger information on income or orders.

I’ve no plans to speculate.