- First, the historical performance, which looks at the company’s historical financials over the past 10 years, where discounts are given for poor performance and inconsistency.
- Second, the profitability, which examines profitability ratios such as return on equity, return on assets and margins.
- Third, the yields, which compares the company’s fundamental yields against the riskfree rate, along with its relative valuation to peers.
- Fourth, financial safety, which examines the company’s balance sheet, comprising liquidity and solvency ratios, the quality of its shareholder equity and any external credit rating on the company.
- Fifth, sentiment, looks at analyst ratings and forward price ratios of the company.
- Last, the price-to-value ratio, which compares the price growth to the weighted value growth over multiple periods. This weighted value includes revenue, net income and cash flows in ascending order.
From the scoring table, most defence companies appear to be fairly valued based on current prices and quantitative metrics.
London-listed QinetiQ Group is the top-scoring company. It covers experimentation and technology, robotics and autonomous systems, engineering services and support, tests and evaluation, cyber and information advantage, and training and mission rehearsal niches in the defence value chain.
See also: Surging defence stocks led Europe’s quarter of US outperformance
Korea-listed LIG Nex1 also scored relatively high among its peers, and has a diversified product portfolio covering customers throughout the army, navy and air force. Its key business areas in the defence value chain include precision-guided munitions; intelligence surveillance reconnaissance; avionics; electronic warfare; and command, control, communication, computer and intelligence (C4I).
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