r/valueinvesting
Rheinmetall (RHM): Market just handed out a discount?
Rheinmetall's explosive earnings growth and low PEG ratio make the recent pullback a compelling value opportunity despite macro risks.
- Explosive EPS growth projected to double in two years, with a highly attractive PEG ratio of 0.5-0.6 compared to the broader market.
- Strong macro tailwinds from Germany rearming and NATO boosting defense budgets, leading to expanding backlogs and massive operating leverage.
- Clear revenue path to €20 billion by 2027, with defense manufacturing dropping significant profit to the bottom line.
- Defense spending could slow down or governments might delay procurement programs.
- The Ukraine conflict might de-escalate faster than expected, reducing the urgency for military rebuilding.
- Current aggressive earnings growth forecasts may prove too optimistic.
Everyone is panicking over the recent pullback, but the fundamentals don't seem to care.
At around €930/share, Rheinmetall is trading at what looks like a growth-stock valuation for a company whose earnings are projected to explode over the next two years.
The numbers are wild:
2025 EPS: \~€18.5
2026 EPS estimate: \~€28.5 (+54%)
2027 EPS estimate: \~€38.5 (+35%)
That's basically a doubling of earnings in just two fiscal years.
Yet despite that growth, RHM's PEG ratio sits around 0.5-0.6, which is typically the territory investors dream about finding.
For comparison:
Most quality industrials trade PEGs above 1
Many AI names trade PEGs well above 2
Rheinmetall is growing earnings at roughly 40%+ annually while trading closer to a mature industrial than a hyper-growth company
What is Wall Street missing?
The market seems obsessed with short-term headlines and contract wins/losses.
Meanwhile:
Germany is rearming
NATO members are boosting defense budgets
Ammunition demand remains far above production capacity
Rheinmetall's backlog keeps expanding
Management is targeting \~€20 billion revenue by 2027
Revenue path:
€10B → €14B → €20B
And because defense manufacturing has massive operating leverage, every new production line coming online drops more profit to the bottom line.
The really interesting part?
The recent selloff happened while analysts are still forecasting earnings growth that most software companies would envy.
If EPS reaches \~€38.5 by 2027 and the market is willing to pay even 25x earnings, you're looking at a business worth materially more than today's price.
The bear case:
Defense spending slows
Ukraine conflict de-escalates faster than expected
Governments delay procurement programs
Current growth forecasts prove too optimistic
The bull case:
Europe has underinvested in defense for decades and is only in the early innings of rebuilding military capability.
If that's true, Rheinmetall isn't a wartime trade.
It's a decade-long rearmament story.
The question isn't whether Rheinmetall can grow.
The question is whether the market is massively underestimating how long this growth cycle lasts.
Am I missing something, or is this one of the most attractive PEG-adjusted opportunities in the European market right now?
Before push the down vote button and call ai slip, bring something that add value, thanks in advance
I feel like ongoing conflicts have shown that having the better, more expensive and shiny material isn't everything on the battlefield.
I’m eyeing Indra Sistemas (IDR) which fits the same thesis but is more aligned to drone warfare as well as civilian airspace.
They’re missing that the company is based in Germany and it sucks to make business in Germany.
The market priced RHM as a 50 billion revenue company in 2030. Therefore, the order book has to expand significantly until then. Investors are now considering that government will reduce their spending spree and cancel some of their big planned projects (e.g. the naval vessels cancelled yesterday). Additionally, market now considers that a higher share of the budget will be reallocated to newer weapon systems like drones and space systems instead of ground troops. Nevertheless, CEO is constantly buying so I‘m personally not worried at all.
Are these earning forecasts taking account of the loss of the contract from the German government for the frigates?
Was never in the RHM order book. Frigate volume was 12 bn while order book for maritime systems end of Q1 was 5.5bn.
Ok so this does show some of AI's shortcomings in the OP.
Certainly interesting framing but it's missing some context that developed yesterday: Germany cancelled the F126 frigate programme, nixing a potential €12.8B naval opportunity that Rheinmetall had hoped to secure following its €1.5 billion acquisition of NVL... Unfortunate stuff. The stock dropped nearly 19% on that. That's not mere market overreaction, it's a material revenue kick in the nuts being repriced.
The PEG thesis therefore rests on forward EPS estimates that are already looking shaky. Q1 2026 EPS came in below consensus and the business is now asking investors to trust its earnings assumptions after losing its biggest naval growth opportunity. The backlog is real and the rearmament story hold, but at a 60x trailing PE you're betting on perfect execution...
Maybe wait for the NATO summit in July to see which way the wind blows.
Meaning they have do obey german law and fight with german bureaucracy. Good luck with that :D
As a german I advise you to stay away from my country. Your health and mental health will thank you later.
Also Germany wipes it’s ass with the tax treaty they have with my country to avoid double taxation - dividends are taxed at 30% at the source instead 15% like they are supposed to. Technically I can apply to a rebate to german tax officials, but the costs and time involved make it entirely untenable if you are a private investor investing pennies.
Because Rheinmetall just lost a big contract (frigates) and a major competitor KNDS is about to do IPO soon.
oh no.. if it's discussed on valueinvesting it will keep dropping
I fundamentally do not trust European governments to follow through on their spending commitments
Nein.
This valuation is a product of the masses thinking: War up, Rheinmetal up.
In reality this is a company as dynamic as a state ministry with a lot of guys called “Dieter” in Birkenstocks and shortsleeve flannel shirts that are expected to win over the competition.
Can you make an actual Point? Without Just insulting someone?