While geopolitical tensions are running high across the European continent due to the war between Russia and Ukraine, Europe is rapidly rearming. Accordingly, the German company Rheinmetall is rapidly expanding its industrial capacity by building new facilities and factories, which in turn brings the company billions of euros in contracts. Based on this, it is logical to assume that the company should thrive. But the most paradoxical thing is that despite the business being overwhelmed with orders and breaking records in profits, the defense giant's shares have fallen by almost 49% over the past year, dropping from an all-time high of over 2000 euros to 950 euros.
If you look at the company's financial position, you can understand that it is financially healthy, and the stock has a somewhat speculative profile.
As of October 2026, the company's market capitalization is almost 45 billion euros. This means it remains one of the most powerful and influential defense enterprises in the European Union and around the world. The P/E ratio stands at 39.3, and the Forward P/E ( if anyone is interested, of course ) is 19.6. The valuation dropped because during 2025 the P/E value was over 64, and according to some financial report data, it even crossed the 90 mark. Based on this, we can say that the current multiple looks adequate for a growing company.
The projected EPS will be 37-38 EUR for 2026, which is actually a strong rise compared to 2025 when it was 14.91 EUR. Here we can conclude that the earnings per share are growing while the price is falling.
And if we talk about dividends, they amount to 11.5 EUR with a yield of 1.2%. The company itself continues to steadily increase payouts to shareholders.
Speaking of the company's revenue, it jumped by +39.4% in the first half of 2026 and reached 5.23 billion euros, while the Backlog grew by +43.8% and surpassed an impressive 80.5 billion euros. Here, Rheinmetall has actually secured work for several years ahead, which is a strong stable plus for the company.
And here the question arises, what is the reason for the drop in shares?
Rheinmetall lowered its annual revenue forecast for 2026 to 13.7-14.2 billion euros. Here you might ask yourself, so what? A few hundred million will not significantly affect a company whose annual revenue is over 10 billion and which has orders for several years ahead. But to put it briefly and simply, stock prices are often driven by future expectations. When the company itself says that "We will earn a little less than you thought or predicted for yourself," a large number of large funds, retail, and speculative investors immediately go to sell shares, even if the company remains profitable.
Another reason is that in June 2026, the German Ministry of Defense completely canceled the project to build six F126 frigates because the project's cost rose from 8 billion euros to 18 billion, and there were also severe delays in this order. Because of this, Berlin looked at cheaper ships from competitor Thyssenkrupp. This means Rheinmetall, which bought the NVL shipbuilding business in March 2026 to create its maritime segment, is left without a potential order of almost 20 billion euros. The company even had to freeze the hiring of 1000 new employees. Here everything is actually just like in politics, until the money hits the account, no contract is 100% guaranteed.
And to conclude the reasons, it is worth considering that even if Rheinmetall's portfolio has 80 billion euros in orders, this is not pure profit. To increase production volumes, you need to hire more workers, purchase expensive raw materials, invest in new factories, logistics, software, and so on. There is a mountain of contracts, but capital is being poured into factories, equipment and capacity expansion. Until the factories are completed, higher orders do not automatically translate into higher profits.
And actually, although I look at the company with a neutral view, the Morningstar agency, which is quite influential, added Rheinmetall to the Top 10 best European companies for investment in the fall of 2026. They assessed the Price/Fair Value ratio at 0.40. I will briefly explain what Price/Fair Value means if someone doesn't know. It shows how much an investor is overpaying for a stock now or if they are buying it at a discount. For example, if it equals 1.0, the stock costs exactly what it should cost. If it is greater than 1.0, for example 1.6, then the stock is overvalued and you are overpaying 60% purely for the hype, making it risky to buy. But if it is less than 1.0, for example 0.7, then the stock is undervalued and we can say it is sold at a 30% discount. It turns out that since Rheinmetall's Price/Fair Value is 0.40, the stock trades at only 40% of its estimated fair value, meaning it is sold at a 60% discount. Well, the analyst consensus price target is 1580 EUR.
Thank you for taking the time to read my material. If any questions arise, do not be afraid to ask. Have a great day.
