General Dynamics’s 11.9% return over the past six months has outpaced the S&P 500 by 6.7%, and its stock price has climbed to $300.75 per share. This performance may have investors wondering how to approach the situation.

Is there a buying opportunity in General Dynamics, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is General Dynamics Not Exciting?

We’re happy investors have made money, but we're sitting this one out for now. Here are three reasons why we avoid GD and a stock we'd rather own.

1. Backlog Is Unchanged, Sales Pipeline Stalls

In addition to reported revenue, backlog is a useful data point for analyzing Defense Contractors companies. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into General Dynamics’s future revenue streams.

Over the last two years, General Dynamics failed to grow its backlog, which came in at $88.66 billion in the latest quarter. This performance was underwhelming and shows the company faced challenges in winning new orders. It also suggests there may be increasing competition or market saturation.

2. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect General Dynamics’s revenue to rise by 3.2%, a deceleration versus its 4.8% annualized growth for the past five years. This projection doesn't excite us and implies its products and services will face some demand challenges.

3. EPS Barely Growing

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

General Dynamics’s unimpressive 4.2% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Final Judgment

General Dynamics isn’t a terrible business, but it isn’t one of our picks. With its shares topping the market in recent months, the stock trades at 20.1× forward P/E (or $300.75 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. Let us point you toward an all-weather company that owns household favorite Taco Bell.

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