BAE Systems (LSE: BA.) shares have been having a bit of a breather recently — they’re basically flat over the past six months. Zooming out a bit further though, they’re up 47% in two years and 120% over three. That easily tops the wider FTSE 100.

Yesterday (19 February), we got the defence giant’s full-year 2024 results, which were solid. So, should I buy more shares for my ISA? Let’s discuss.

Strong growth and huge order backlog

Last year, BAE’s sales jumped 14% to £28.3bn, while underlying profit grew by the same percentage to just over £3bn. Underlying earnings per share (EPS) increased 10% to 69.5p.

A final dividend of 20.6p was declared, taking the total for 2024 to 33p — an increase of 10%. However, due to the strong share price appreciation in recent years, the forward-looking dividend yield here is just 2.65%. That’s below the FTSE 100 average.

The company also repurchased 43m of its own shares. Combined with dividends, that saw it return nearly £1.5bn to shareholders throughout the year.

CEO Charles Woodburn commented: “We’re supporting our customers around the world, while shaping our portfolio towards higher growth and strategically important markets… Based on the exceptional visibility of our record order backlog and sustainability of our value-compounding business model, we remain confident in the positive momentum of our business into the future.”

Speaking of that record order backlog, it’s now reached a gargantuan £77.8bn. That’s 11% — or £8bn — higher than the start of 2024, and nearly three times the firm’s annual revenue!

Looking ahead to 2025, BAE expects sales to increase as much as 9%, with earnings rising 8%-10%.

Paradigm shift

At the recent defence summit in Munich, European political leaders agreed that they need to spend more on defence. US President Donald Trump has gone further, saying that NATO members should spend 5% of GDP on defence, rather than the current target of 2%.

But hang on. Europe is no hotbed of high economic growth. So how would it afford this? Well, European Commission President Ursula von der Leyen proposed exempting defence expenditures from EU budget constraints, thereby artificially creating room for further spending.

According to Reuters, Deutsche Bank analysts say that correcting 10 years of underspending by NATO members will cost €800bn!

Obviously this is a massive long-term opportunity for BAE, as Europe is certain to focus on enhancing its own defence production capabilities. Chief executive Woodburn called it a “paradigm shift“.

Indeed, one potential challenge I see here is that BAE may struggle to scale quickly enough due to capacity constraints and a shortage of skilled workers, potentially limiting its growth opportunities. However, management reckons such challenges can be overcome, and is already having “high-level” conversations with governments about demand.

Another risk here is the US government efficiency drive led by Elon Musk, which could lead to defence cuts and reduced opportunities for BAE across the pond.

My move

I first bought BAE shares in 2022 at 819p, then added on a dip at 1,158p in December last year. Now at 1,317p, the stock is currently trading at 19 times earnings, which is reasonable compared to global peers.

For investors looking for a defence stock to buy, I think BAE is worth considering. Weighing things up though, I’m happy with my own position size for now.