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Typically, the FTSE 100 isn’t known for quick share price growth. It’s more associated with mature companies that pay stable dividends with steady growth.
Including dividends, the Footsie has gained 69% over the five years. But one share within the index is already up by the same amount this year alone.
Soaring to an all-time-high
The share I’m referring to is BAE Systems (LSE:BA.). This aerospace and defence contractor is soaring to record highs, both in terms of share price and earnings.
The business is on a solid footing, and it benefits from an ample order backlog and pipeline of work. This provides excellent visibility of earnings, offering predictable cash flows.
But after a near-70% gain in share price in 2025 alone, has it got any more ammunition for further gains? I reckon so.
Looking ahead, the biggest factor that could benefit BAE Systems and its share price is the changing defence and security landscape. For instance, European NATO members are boosting their defence budgets in response to heightened geopolitical tensions.
Also, the UK has committed to raising defence spending to 2.5% of GDP by 2027. It also has an ambition to reach 3% in the next parliament. This directly benefits BAE Systems as it’s a key contractor.
These are long-term decisions that are unlikely to reverse, in my opinion.
Global conflicts and threats are rapidly evolving. And that’s why BAE is investing in emerging technologies such as uncrewed air systems, space solutions and cybersecurity, among others.
Its investments over many years are bearing fruit too. For instance, just this year it secured a mammoth £500m contract with the Ministry of Defence for naval radar systems.
Points to consider
So far this year, the world has seen considerable uncertainty surrounding US tariffs. On this note, the company doesn’t expect to be materially impacted by them. That’s because most of its equipment for US customers is produced in the US.
But there are some factors to be aware of. The US is BAE’s biggest market. Any major shift towards more ‘America First’ policies could impact sales.
Large-scale defence projects can suffer from cost overruns and delays. It’s certainly something it needs to stay on top of.
In addition, BAE relies on being at the forefront of advanced technologies. But this is rapidly changing, especially in an age of AI. It must at least keep pace with competitors to avoid being outcompeted by superior technology.
A growing business at a reasonable price
Overall, it looks like a solid business with ample opportunities to grow. With a price-to-earnings ratio of 25 it’s not the cheapest it has been in recent years but it also doesn’t appear too expensive given its prospects.
BAE has earnings growing at 8%-10%, a return on capital employed of 12%, plus a 2% dividend yield. This looks like a solid FTSE 100 share to me.
I used to hold it but sold it to raise some cash. As soon as I have some more available money in my Stocks and Shares ISA, I’ll be buying this one back.
