Jabin Bastian
3 min read
Over the last six months, General Dynamics’s shares have sunk to $326.50, producing a disappointing 6.7% loss – a stark contrast to the S&P 500’s 15.2% gain. This might have investors contemplating their next move.
Is now the time to buy General Dynamics, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is General Dynamics Not Exciting?
Even with the cheaper entry price, we don’t have much confidence in General Dynamics. Here are three reasons you should be careful with GD, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, General Dynamics grew its sales at a mediocre 7.3% compounded annual growth rate. This fell short of our benchmark for the industrials sector.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect General Dynamics’s revenue to rise by 4%, a deceleration versus its 7.3% annualized growth for the past five years. This projection is underwhelming and implies its products and services will face some demand challenges.
3. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
General Dynamics’s unimpressive 7.4% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
Final Judgment
General Dynamics isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 18.8× forward P/E (or $326.50 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We’re fairly confident there are better investments elsewhere. We’d recommend looking at our favorite semiconductor picks and shovels play.
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