Rheinmetall share price has pulled back in the past few days as investors reflect on the recent buyout of NVL, a top warship company. It was trading at €1,905, a few points below the year-to-date high of €1,985. So, is this overvalued military company stock a good buy?
Rheinmetall share price has surged this year
Rheinmetall and other top defense companies in Europe have done well this year, helped by the increase defense spending by most countries in the region.
One major concern is that the US, under Donald Trump, has become an unreliable ally because of his nationalistic tendencies.
Trump has also been less supportive of Ukraine than Joe Biden was, pushing more European countries to provide more weapons to the country.
Most importantly, he has pushed NATO members to boost their defense spending to about 5% of their budget, a notable increase since most countries spend less than 3% today.
Top European countries have now pledged to boost their spending, with many of them focusing on European companies such as Rheinmetall and BAE Systems, which explains why their stocks have soared this year.
Financial results show that Rheinmetall’s business is booming, which has made it a growth company today. The most recent numbers showed that the group sales rose by 24% in the second quarter to over €4.7 billion.
Rheinmetall’s operating result rose modestly to €276 million, while its backlog jumped by 30% to over €63 billion.
Backlog is an important number that looks at a company’s unfilled orders. It is one of the most important metrics that investors look at when determining whether to invest in an industrial company like Rheinmetall.
Rheinmetall’s growth is being driven by its vehicle systems business, whose revenue rose by 17% to €945 million. Weapons and ammunition, and its electronic solutions grew, while its power business slowed.
Expansion to the naval industry
The most recent catalyst for the Rheinmetall share price is its acquisition of NVL, a division of the Luerssen Group. This buyout is a bet that demand for naval equipment will continue rising in the coming years.
The company believes that the buyout will create a major company that will expand it industrial base in Northern German. In addition to Europe, the company sees a potential for growth in the United States, where the Trump administration is working to boost shipbuilding.
Still, the main concern for the Rheinmetall share price is that it ha become a highly overvalued company. It has a price-to-earnings ratio of 97 and a forward multiple of 50, making it more expensive than other companies.
For example, BAE Systems has a forward PE ratio of 17, while Lockheed, RTX, and Northrop Grumman have multiples of less than 20.
Rheinmetall stock price technical analysis
RHM stock chart | Source: TradingView
The daily timeframe chart shows that the RHM stock price formed a double-top pattern at €1,940 and a neckline at €1,485, its lowest level in August last year.
Therefore, there is a risk that the RHM stock price will drop in the coming days. If this happens, the next key support to watch will be at €1,800. A move above the resistance level at €1,985 will invalidate the bearish outlook.
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