The Rheinmetall share price is firing on all cylinders this year. It has jumped by 180%, beating the DAX Index and other defense companies like Northrop Grumman, RTX, and Lockheed Martin.
This year’s RHM stock price surge is a continuation of what has been going on in the past five years. It has jumped by over 2,500% in this period, transforming it into the fifth-biggest defense contractor after RTX, Honeywell, Safran, and Lockheed Martin.
Rheinmetall has passed other well-known companies like BAE Systems, General Dynamics, Northrop Grumman, and L3Harris Technologies.
The Russian-Ukrainian war was the catalyst
Rheinmetall’s stock price surge accelerated in 2022 when Russia invaded Ukraine, leading to a surge in Western military equipment.
This war has led to a surged since then. The company made over €5.6 billion in annual revenue in 2021, €6.4 billion in 2022, and €7.1 billion and €9.7 billion in the next two financial years.
Demand for Rheinmetall’s products will continue rising as geopolitical events are expected to worsen. For one, the crisis in the Middle East continues, presenting a risk that it will become a long war.
A prolonged war will benefit defense contractors as it will lead to more demand for bombs and munitions. At the same time, the war in Ukraine is still going on, with Donald Trump and Vladimir Putin struggling to reach a deal.
Most importantly, European countries see Donald Trump as an unreliable ally and are now boosting their spending. Earlier this year, the German parliament voted to add spending by about €500 billion over a 12-year period. Rheinmetall will be a top beneficiary to this. Europe plans to spend over €800 billion by 2030 on defence.
Growth gains momentum
The strong demand has turned Rheinmetall from a traditional industrial company into a high-growth company.
The most recent numbers showed that the company’s revenue rose by 46% to €2.3 billion, while its operating result soared by 49% to €199 million.
Most importantly, the company’s backlog has surged to over €62 billion or $71 billion, a 56% increase. It expects that its backlog will jump to over €80 billion this year.
This growth is largely coming from the vehicle systems, whose revenue jumped by 93% to €952 million. Its weapon and ammunition revenue rose by 66% to €599 million, while the electronic solutions rose by 49%.
Rheinmetall believes that its revenue will grow by between 25% and 30% this year, while its operating margin will be about 15.5%.
The main concern that Rheinmetall has is that its revenue and profitability growth has made it highly expensive. Going by its guidance, a 30% annual revenue increase will be €12.6 billion this year.
At the same time, the company’s operating margin will be 15.5%, meaning that its operating profit will be about €1.9 billion. Using this metric, it means that the company trades at a price-to-operating profit ratio of 40, which is highly expensive. Its current P/E ratio of 92 is also higher than other high-margin and high-growth companies like NVIDIA and Microsoft.
Rheinmetall share price analysis
The daily chart shows that the RHM share price has pulled back from the year-to-date high of €1,943 to the current €1,720. It has moved below the lower side of the rising wedge pattern, a popular bearish reversal sign.
Therefore, there is a likelihood that the Rheinmetall share price will continue dropping to €1,500 as investors start to take profits. This view will be confirmed if it drops below the 50-day moving average at €1,632.
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