Rolls-Royce (LSE: RR.) shares have been a great investment. And looking ahead, they may continue to do well. However, I believe that plenty of other stocks will outperform Rolls-Royce over the next five years. Here’s a look at one such stock.
Unlikely to soar?
Rolls-Royce definitely has things going for it from an investment perspective right now. So it could still be worth considering for a portfolio today.
For starters, it has exposure to several different growth industries including civil aviation, defence, and nuclear energy. The defence exposure, in particular, could be a key growth driver for the group as it’s looking like European countries may be about to spend a whole lot more on national security.
It’s worth noting that the company already has momentum in defence. In January, it was awarded a £9bn eight-year contract by the British government to design, make, and support nuclear reactors for submarines.
There’s also the fact that profits are rising rapidly thanks to a focus on efficiency by CEO Tufan Erginbilgiç. For 2025, earnings per share are forecast to rise about 17%, although earnings forecasts aren’t always accurate.
I do think a lot of future revenue and earnings growth is already priced into Rolls-Royce shares though. Currently, the stock’s price-to-earnings (P/E) ratio is about 30, which is quite high for an industrial company like this.
Given that lofty earnings multiple, I don’t expect the shares to soar over the next five years. They could even experience some weakness if near-term revenue growth slows or higher supply chain costs lead to lower-than-expected earnings.
More potential?
One stock I have more conviction in over this timeframe is transportation company Uber (NYSE: UBER). It’s listed in the US as a member of the S&P 500 index.
Now, this stock also has a relatively high valuation. Currently, its forward-looking P/E ratio is about 32. But I can still see the potential for strong long-term returns here. That’s because Uber’s a very scalable company.
In the years ahead, I expect Uber to expand into many new markets. Not only is it likely to offer rideshare services in new cities but it is also likely to offer new types of travel services (it currently offers taxi rides, boat rides, train tickets, scooter hire, food delivery, and much more).
Additionally, it could see significant revenue and earnings growth from digital advertising. Today, Uber’s showing ads in its app and these can be very lucrative for a company.
I’ll point out that I expect this stock to be volatile. In the short term, there are several factors that could spook investors and/or hit growth including regulatory intervention, driver strikes, random events (such as the wildfires in LA), and competition from Tesla and its robotaxis.
However, taking a five-year view, I’m excited about the growth potential. I could be wrong, of course, but I wouldn’t be surprised to see the stock suring from here as its market-cap’s only $165bn. So I think it’s worth considering today.
