Just when I thought BAE Systems (LSE: BA) shares might finally slow after their extraordinary run, the US struck Iran. Can the turmoil drive the BAE Systems share price even higher?

The FTSE 100 giant has been flying ever since Russia invaded Ukraine in 2022. It’s shares are up 350% over five years and almost 45% in the last 12 months. Even that doesn’t make it the strongest defence performer. Fellow FTSE 100 contractor Babcock International Group has surged 486% over five years and 103% in the last year.

It’s been a terrific time to hold defence stocks, which sadly means it’s been a rotten time for world peace.

FTSE 100 growth powerhouse

Over the last month, the BAE Systems share price has jumped another 16.9%. That would have transformed a £15,000 investment into £17,535. That’s a gain of £2,535, which is impressive in a short time.

Inevitably, the shares aren’t cheap. The price-to-earnings ratio stands at around 28. Although, given current concerns, that isn’t exactly stretched. Yet nobody knows how the latest conflict will end. If diplomacy suddenly prevails, the shares could retreat just as fast. Investors buying after the latest rally are taking a risk.

Full-year results published on 18 February showed the business performing strongly. Underlying operating profit rose 12% to £3.32bn while sales climbed 10% to £30.7bn. BAE Systems also enjoys remarkable earnings visibility. Its order backlog now stands at a record £83.6bn, giving a clear pipeline of future work.

Investors weren’t completely satisfied though. Some had hoped for a share buyback that never came. Cash flow did fall slightly, although the board was still able to cut net debt by 22% to £3.84bn, further strengthening the balance sheet.

Operational risks remain. Supply chain issues and production delays continue to affect defence manufacturers and could worsen if energy prices surge again. After its huge run, some investors believe much of the good news is already reflected in the share price. Although, given the way the world is going, defence spending could stay elevated for years.

Lack of share buyback

European governments face mounting pressure to boost military investment, notably from Donald Trump. Germany plans to increase spending sharply, but other countries remain cautious. The cash-strapped UK government is under pressure to spend more on defence, but has plenty of other spending priorities.

I hold BAE Systems and it’s helped to offset losses elsewhere in my SIPP.  Today, it’s difficult to imagine a well-balanced portfolio without exposure to a major defence contractor, unless ethical concerns rule that out.

I think the shares are well worth considering with a long-term view, but the short term could be bumpy as events in the Middle East drive sentiment. But in today’s warlike world, I’m sad to say that BAE Systems is impossible to ignore. Since I already have a big stake, I won’t buy more. Instead, I’ll turn my attention to shares that have taken a beating lately, but might recover once today’s clouds lift. There are plenty out there. But only one BAE Systems.