General Dynamics (NYSE:GD) stock left the Dow in its dust on Wednesday, closing the day 5% higher after reporting a strong end to fiscal 2017. The applause was well-earned.

For its final fiscal quarter of the year, General Dynamics says it earned $2.10 per share on sales of $8.3 billion. Those sales were up 8.1% in comparison to Q4 2016 by the way, and earnings -- boosted by a big jump in operating profit margin -- climbed nearly 14%.

And those were only the quarterly results. General Dynamics actually had an all-around great year. Speaking of which, we only get a chance to review full-year results at GD but once a year, so let's not waste it. Here's a rundown of ...

Cartoon tank

Gulfstream soared, but tanks were the real heroes of General Dynamics' 2017 earnings report. Image source: Getty Images.

How General Dynamics performed in 2017

For full fiscal year 2017, General Dynamics reported:

  • Sales growth of only 1% to $31 billion.
  • But a 130 basis point increase in operating profit margin to 13.5%.
  • With each revenue dollar more profitable, net profit per diluted share grew 15% to $9.73 (and would have grown more but for a "one-time, non-cash decrement to earnings" accounting for the recently passed tax reform, which sapped earnings in Q4).
  • And free cash flow was $3.4 billion -- 18% better than reported net income and a 91% increase over last year's $1.8 billion in cash profits.

Thus, at Wednesday's closing market capitalization of $64.6 billion, General Dynamics stock now costs:

That's a historically high valuation for General Dynamics stock. Then again, GD's valuation has looked stretched for quite some time now (as have the valuations of most military stocks), without any obvious repercussions for investors who've bought it. Could it be that General Dynamics stock will continue climbing even higher in the new year?

Tanks for the profits, GD

Most analysts reviewing General Dynamics' earnings report yesterday appeared to be keying in on the strength of GD's Aerospace unit -- particularly Gulfstream. And yes, that business' performance was not inconsiderable. Aerospace sales rose 4% year over year in 2017, and the unit posted a 19.6% operating profit margin -- still the best GD has to offer.

Personally, though, I'm more interested in (and impressed by) the performance of General Dynamics' legacy Combat Systems business, which builds the Abrams main battle tanks and Stryker armored personnel carriers for the U.S. Army. Combat Systems sales surged 8% in 2017, nearly twice as much as Aerospace sales. And Combat Systems margins were 15.8%, not far off from what GD earns from Gulfstream.

Long story short, I still think General Dynamics stock is historically overvalued. I cannot bring myself to invest in it today; but that being said, the better GD's Combat Systems business does (and it's doing just fine already), the less overvalued General Dynamics stock will look in the quarters and years to come.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.