Is Dassault Aviation (ENXTPA:AM) Still a Hidden Value Play in the Defense and Aerospace Sector?

The defense and aerospace sector has experienced a seismic shift in 2025, driven by geopolitical tensions and a global push to bolster military capabilities. Against this backdrop, Dassault Aviation (ENXTPA:AM) has emerged as a focal point for investors seeking undervalued exposure to the European defense industrial base. With its stock up sharply year-to-date, the question now is whether the company remains a compelling value play or if its valuation has already priced in future growth.

Valuation Metrics: A Mixed Picture

Dassault's valuation metrics present a nuanced narrative. As of Q3 2025, the company trades at a Price-to-Earnings (P/E) ratio of 26.9x, which is below its historical fair value estimate and significantly lower than the European aerospace and defense industry average of 30x forward earnings according to analysis. This suggests the stock may still be undervalued relative to its peers, particularly when compared to global giants like Airbus (P/E of 30.92x) and Lockheed Martin (P/E of 21.6x) as reported.

However, the Enterprise Value (EV)/EBITDA ratio of 16.8x tells a different story. While this metric is in line with the sector's median multiple of 17.82x according to industry data, it implies a premium to earnings potential, especially given the industry's high expectations for future growth. Analysts caution that European defense stocks are trading at valuations that assume earnings will quadruple or even quintuple over the next decade as one report notes, a bar that may be difficult to clear.

The Price-to-Book (P/B) ratio, though not explicitly stated for Dassault, is inferred to be competitive within the sector. European defense firms typically trade at higher P/B ratios due to their capital-intensive nature and long-term contract visibility, which Dassault benefits from through its involvement in programs like the Rafale fighter jet and the Falcon business jet line according to market data.

Sector Valuation Trends: High Multiples, High Stakes

The European aerospace and defense sector has seen a valuation rally in 2025, with indices surging 70% year-to-date according to industry analysis. This surge is fueled by NATO's commitment to increase defense spending to 3.5% of GDP by 2035 and the broader shift toward vertical integration in defense electronics and space technologies as detailed in a report. However, these high multiples are not without risk. As one industry report notes, "The current valuations imply that companies must deliver outsized earnings growth to justify their prices" according to analysis.

Dassault's position in this landscape is unique. While its EV/EBITDA of 16.8x is higher than peers like Textron (9.94x) and lower than Airbus (14.31x) as reported, it reflects a balance between its exposure to both defense and commercial aviation. The company's commercial jet business, though smaller than Airbus or Boeing, benefits from niche markets and a strong brand in business aviation. Meanwhile, its defense segment is well-positioned to capitalize on France's €100 billion defense modernization plan according to market insights.

Growth Drivers and Strategic Positioning

Dassault's valuation must also be viewed through the lens of its strategic investments. The company has prioritized digital engineering and AI-driven predictive maintenance, aligning with sector-wide trends that are expected to reshape supply chains and operational efficiency. Additionally, its partnerships in missile-defense systems and space architectures position it to benefit from cross-border investments in critical technologies as reported.

Macro factors further support its case. With European interest rates expected to ease in 2026 and global defense budgets expanding, Dassault's cash flow visibility and low debt levels make it an attractive candidate for capital preservation according to analysis. However, investors must weigh these positives against the sector's elevated valuations and the risk of overvaluation if geopolitical tensions ease or defense spending slows.

Conclusion: A Value Play with Caveats

Dassault Aviation remains a compelling but cautious value play. Its P/E ratio suggests undervaluation relative to both the sector and its peers, while its EV/EBITDA reflects a premium justified by its strategic positioning in high-growth defense and aerospace niches. However, the company's ability to sustain its valuation will depend on its execution in modernization programs and its capacity to outperform in a sector where expectations are sky-high.

For investors with a medium-term horizon and a tolerance for sector volatility, Dassault offers a unique blend of defensive qualities and growth potential. Yet, as with all high-multiple plays, the margin for error is slim.