Saab: A Great Company At The Wrong Price

2025-05-06 18:11:33 ET

Summary

• European defence spending is surging due to geopolitical tensions, benefiting Saab, which has seen a 126% share price increase this year alone.
• Saab's Q1 2025 results show strong growth with an 11% revenue increase and a 22% rise in EBIT, driven by increased defence demand.
• Despite growth, Saab's shares appear overvalued, trading at a significant premium compared to historical valuations and peers, raising concerns about future upside.
• Potential reductions in defence spending if geopolitical tensions ease, make Saab's current valuation unsustainable; hence, I rate the shares as a sell.

Introduction

The European defence landscape is undergoing a major shift. With geopolitical tensions following the conflict in Ukraine and uncertainty regarding European reliance on the US, Europe is rearming. European defence spending hit €326 billion in 2024 and is projected to rise further. Sweden, having joined NATO last year, plans to boost defence spending to 3.5% of GDP by 2030, borrowing SEK 300 billion to support this aim....

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