A funny thing happened to General Dynamics (GD 0.37%) stock last week -- and by "funny," I mean sad.
General Dynamics reported an earnings beat for its final quarter of 2025, earning $4.17 per share, where Wall Street expected only $4.11, and reporting sales of $14.4 billion -- $600 million ahead of expectations.
And yet, despite the good news, investors sold off General Dynamics stock by nearly 3% on earnings day. The stock closed the week 4% lower than it began (and continued to sell off on Monday as well).
Why?
Image source: Getty Images.
General Dynamics Q4 earnings
Profit margins appear to be part of the answer. General Dynamics grew Q4 sales 8%, but operating earnings increased only 2%, net earnings declined 0.4%, and earnings per share increased only 0.5% -- basically flat year over year.
This speaks to weakening profit margins; indeed, two of the defense company's primary business divisions, aerospace and technologies, both posted weaker margins in the quarter, while a third, combat systems, showed minimal improvement. The only GD business to show clear improvement in Q4 was marine systems, where revenue surged 22%, operating profit increased by more than 72%, and operating profit margin improved by 210 basis points.
Marine systems, however, remains the company's least profitable division, with a 7.2% margin.
General Dynamics 2025 earnings
GD's full-year results look a little better. Over the course of 2025, both marine systems and aerospace achieved sales growth of more than 16%. (Combat systems and technologies sales grew only in the low single digits.)
Operating profits also improved significantly in both marine and aerospace (with smaller improvements in combat and technologies). Profit margins inched higher everywhere but in the technologies division.
On the bottom line, GD earned $15.45 per share on $52.6 billion in sales in 2025.
NYSE: GD
Key Data Points
Is General Dynamics stock a buy?
As for 2026, General Dynamics did not provide guidance in its earnings report per se, reserving this for its post-earnings conference call. There, management confided it expects to earn about $16.15 per share in 2026, on sales of about $54.5 billion.
That works out to mid-single-digit growth in both sales and earnings this year -- 4% to 5% -- on a 16 P/E stock, which, to me, sounds kind of expensive. Free cash flow also lags reported net income (a second strike against the stock), while the company's price-to-sales ratio is a heady 1.8. (Historically, defense stocks have proven fairly valued when their P/S ratio is closer to 1.4x sales, and ideally closer to 1.0x.)
For all these reasons -- and despite the earnings beat -- I consider General Dynamics stock a sell right now.
