Rolls-Royce (LSE:RR) has been a terrific stock for investors over the last few years. But going forward, I think other UK shares could be better choices for investors with a long-term outlook to consider.
Beyond the FTSE 100 and the FTSE 250, there are some companies with very strong growth prospects. And they’re currently trading at what I see as attractive valuations at the moment.
Rolls-Royce
The Rolls-Royce share price has gone from 93p to £5.79 since the start of 2023. That’s a 521% gain, which is enough to turn £10,000 into more than £62,250.
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A lot of this has been driven by factors that I expect to normalise. Recovering travel demand is one – while this surged following the pandemic, I think it’s unlikely to keep growing at the same rate.
Another is multiple expansion. Since the start of 2023, the price-to-sales (P/S) multiple that Rolls-Royce shares trade at has gone from 0.63 to 2.74, but I’m not expecting this to keep increasing indefinitely.
Rolls-Royce P/S ratio 2021-2025
Created at TradingView
It’s hard to see either of these forces continuing to push Rolls-Royce shares higher at the rate they have been. That’s not to say it won’t be a good investment, but it could be time to look elsewhere.
Macfarlane
Macfarlane (LSE:MACF) is a stock I’ve been buying recently. It designs and manufactures protective packaging for a variety of different industries.
The risk with the business is it operates in an industry with some bigger competitors. But the firm has close relationships with its customers and provides bespoke products that aren’t easy to disrupt.
The stock is trading at an unusually low price-to-earnings (P/E) multiple, but I’m anticipating growth on the way. The recent acquisitions of Polyformes and Pitreavie should boost earnings from this year.
This makes Macfarlane a growing business with shares trading at an attractive price. I think investors should consider the stock as a potential outperformer over the next few years.
Wise
Shares in money transfer service Wise (LSE:WISE) are only slightly above where they were when the company went public in 2021. But I think it’s a terrific business with a lot of scope for growth ahead.
The stock trades at a price-to-earnings (P/E) multiple of 20, which doesn’t look too bad. But investors should note that around 75% of its income comes from interest on the cash it holds in its accounts.
This is important, because this makes the prospect of lower interest rates a risk for shareholders to consider. Wise is unlikely to be able to generate the same return if rates come down.
Ultimately, though, Wise’s core product is cheaper and faster than its rivals. And with a huge market to expand into, I think the next five years could be very bright for the company and the stock.
The next Rolls-Royce
Rolls-Royce is a quality business and I’m not saying it’s a bad stock to own. But it’s hard to see how the things that have caused the share price to rise over the last few years are going to continue from here.
With that in mind, I’m looking at other UK shares at the moment. And both Macfarlane and Wise are ones that I think have a lot of room to grow beyond their current valuations.
