Investors who decided to buy Cohort (LSE:CHRT) shares at the start of the year have done very well. It’s beating the FTSE 100’s more illustrious defence names – and analysts think it can continue.

The average price target is 43% above the current share price, compared with 3% for BAE Systems and even less for Rolls-Royce. So after a 36% rally this year, is there still time to consider buying?

Defence

There are lots of reasons for investors to look for potential opportunities in the defence industry right now. The most obvious is an increase in NATO spending that looks permanent.

As a result, firms with substantial exposure to defence spending have seen their share prices climb significantly. From the UK, BAE Systems is up 64% in the last 12 months and Rolls-Royce is up 120%.

By contrast, Cohort – a much smaller operation – is only up around 15%. As a result, £1,000 still buys 83 shares in the company and I think it’s well worth considering seriously.

The firm has had some issues lately, but these look like temporary challenges. And with the stock starting the year very positively, investors might well think this is the time to take a look.

Earnings

A look at Cohort’s latest earnings reveals something striking. While revenues grew 9% in the six months leading up to 31 October 2025, operating income actually fell from £10.1m to £9.7m.

This was because the firm’s new sonar systems for Italian submarines went into the volume production phase. Manufacturing these is more expensive than designing them, which meant lower margins.

Cohort, though, expects margins to recover in the next six months. For one thing, the project moving through its initial manufacturing phase should mean the firm can release cash held as a contingency.

Higher expected revenues should also boost margins. With sales going up faster than costs, the effect should be better profitability for the business as a whole. 

Risks

Cohort isn’t like the big defence contractors. Instead of making things like submarines and tanks, it makes the things that go into them – sonar systems, drone detectors, and so on.

In terms of revenues, it’s also around 1% of the size of BAE Systems. While that can mean more scope for growth, it also brings a risk of losing key employees to a bigger competitor with deeper pockets. 

That’s especially important in the defence sector. Replacing talented individuals is hard in any industry, but the added requirements for security clearance make key staff even harder to replace.

Investors should think carefully about this. But Cohort’s entrepreneurial culture and decentralised business might mean it can offer its key executives something they can’t find at a bigger firm.

An opportunity?

Rising defence spending could be a huge opportunity for investors, but Cohort’s revenue growth hasn’t been matched by its profits. That, however, could be set to change in the near future.

Management expects margins to recover in the next few months and continue on from that point. In fact, it’s targeting a mid-teen operating margin over the medium term. 

That’s roughly double the current level, implying a 100% increase in operating profits, even leaving revenue growth aside. I think that’s something investors should take very seriously.