General Dynamics’s 27.9% return over the past six months has outpaced the S&P 500 by 19.3%, and its stock price has climbed to $319.61 per share. This was partly thanks to its solid quarterly results, and the run-up 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? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is General Dynamics Not Exciting?

We’re happy investors have made money, but we're sitting this one out for now. Here are three reasons why GD doesn't excite us and a stock we'd rather own.

1. Weak Backlog Growth Points to Soft Demand

In addition to reported revenue, backlog is a useful data point for analyzing Defense Contractors companies. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into General Dynamics’s future revenue streams.

General Dynamics’s backlog came in at $103.7 billion in the latest quarter, and over the last two years, its year-on-year growth averaged 2.1%. This performance was underwhelming and suggests that increasing competition is causing challenges in winning new orders.

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 3.5%, a deceleration versus its 5.5% annualized growth for the past five years. This projection is underwhelming and suggests its products and services will face some demand challenges.

3. EPS Barely Growing

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

General Dynamics’s unimpressive 5.8% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.

Final Judgment

General Dynamics isn’t a terrible business, but it isn’t one of our picks. With its shares beating the market recently, the stock trades at 20.7× forward P/E (or $319.61 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better investments elsewhere. Let us point you toward a top digital advertising platform riding the creator economy.

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