BAE systems(LSE: BA) the share price has more than doubled since Russia invaded Ukraine on February 24, 2022. It has gained approximately 57% over the last 12 months from its July 10 low.

This highlights for me a key point in stock investing: just because a stock has gone up in price doesn’t mean there is no longer any value in it.

It may be that the company is now worth more than before. Or that the market is simply catching up with the company’s value.

In my experience, a stock can be worth much more than even the elevated share price reflects. I think that’s certainly the case with BAE Systems.

Quotation

The British defense giant is currently valued at a key price-to-earnings (P/E) ratio of 22.5.

Therefore, in this respect it is very undervalued compared to other companies whose average P/E ratio is 45.3.

The same goes for the key price-to-book (P/B) ratio. The company has a P/B of 4, while the average for its competitors is 4.7.

Therefore, for both key measures, the shares appear to be as follows: FTSE100 opportunity.

Business prospects

Since the invasion of Ukraine, the world has seemingly become a much more threatening place. The political consensus in the West is that if Russia succeeds in the war, it will continue to advance west.

That is why in February NATO members declared an enhance in defense spending to over 2% of gross domestic product.

The German IFO Institute has calculated that EUR 1.8 trillion would need to be spent to compensate for 30 years of underinvestment in European defense.

While we don’t want war, the reality is that defense companies benefit. For BAE Systems, the order backlog increased to £58 billion in 2023 from £48.9 billion in 2022. Over the same period, the order backlog increased to £69.8 billion from £58.9 billion.

This resulted in an enhance in sales of £25.3 billion in 2023 (from £23.3 billion in 2022) and operating profit to £2.6 billion (from £2.4 billion).

In 2024, it expects year-over-year sales to grow by 10%-12% and underlying profits to grow by 11%-13%.

The risk for the company is that the world will become safer, although we count on it. Another is any major redesign of the core product line, which would be very steep.

However, analyst consensus predicts earnings and revenues to grow 6.7% and 8.9% annually, respectively, through the end of 2026.

Would I buy it now?

After I turned 50, I sold almost all of my growth stocks and bought more high-yield stocks instead. The idea is that dividend income will allow me to continue to reduce my work commitments.

BAE Systems was one of the few growing companies I retained.

It pays a dividend – currently around 2.2%. But it’s less than that FTSE100 average 3.8%. And that’s significantly less than my minimum high-income share requirement of 7%.

However, the main reason I kept BAE Systems was because it looked very underpriced when I bought it – and still does. Another key reason was that the company seemed set on continuing to grow the business – and the same applies today.

In brief, if I didn’t already own it, I’d buy it now, despite the recent price enhance.