Leonardo DRS’s 16.4% return over the past six months has outpaced the S&P 500 by 11.3%, and its stock price has climbed to $46.11 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Following the strength, is DRS a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Does Leonardo DRS Spark Debate?
Developing submarine detection systems for the U.S. Navy, Leonardo DRS (NASDAQ: DRS) is a provider of defense systems, electronics, and military support services.
Two Things to Like:
1. Skyrocketing Revenue Shows Strong Momentum
We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Leonardo DRS’s annualized revenue growth of 13.6% over the last two years is above its five-year trend, suggesting its demand recently accelerated. 
2. EPS Surges Higher Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Leonardo DRS’s EPS grew at an astounding 25% compounded annual growth rate over the last two years, higher than its 13.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to be Careful:
New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Leonardo DRS’s ROIC has decreased over the last few years. Only time will tell if its new bets can bear fruit and potentially reverse the trend.
Final Judgment
Leonardo DRS’s positive characteristics outweigh the negatives, and with its shares outperforming the market lately, the stock trades at 37.9× forward P/E (or $46.11 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.
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