Rheinmetall After a 45% Drop: Berlin Sinks Frigates and the Market Buries the Defense Champion. Rightly So?

Just last September, Rheinmetall $RHM.DE was the untouchable star of European markets. The stock had broken through the €2,008 mark, and the company, which before the Russian invasion of Ukraine was valued at around four billion euros, was approaching a market cap of €90 billion. In the meantime, the Düsseldorf-based group was buying shipyards, building ammunition factories, and its CEO Armin Papperger spoke of a "global defense champion."

Nine months later, everything is different. The stock closed on July 3 at €1,093.40, roughly 45% below its all-time high, and has lost approximately 33% over the last twelve months. The final blow paradoxically came from its biggest customer: the German government canceled the F126 frigate program at the end of June, a program on which Rheinmetall, after acquiring the NVL shipyards, was expected to earn for years to come. The stock lost nearly a fifth of its value in a single day, which according to Bloomberg was one of the worst trading days in the company's modern history.

Yet the operating numbers tell a completely different story. The order backlog reached a record €73 billion, margins have been expanding for the fifth consecutive year, and management confirms its outlook for revenue to jump 40 to 45% this year. So what exactly is Rheinmetall today: an overheated stock finally coming back to earth, or a healthy company being punished by the market for a single canceled contract?