Here’s why the Rolls-Royce share price has jumped 88% in a year, breaking record highs!

As the Rolls-Royce share price continues to skyrocket, Charlie Carman delves into the reasons behind the FTSE 100 company’s success.

| More on:
Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Some say the FTSE 100 lacks good growth stock opportunities, but a glance at the Rolls-Royce (LSE:RR.) share price chart tells a different story. Returns for investors in the aerospace and defence pioneer over recent years have been exceptional.

Under Tufan Erginbilgiç’s leadership, the jet engine maker has roared into action with a remarkable turnaround from its pandemic woes. As the company upgrades its mid-term outlook, Rolls-Royce shares continue to smash through new highs in 2025. Consequently, I’m a very happy shareholder.

Let’s explore the reasons underpinning the stellar performance and where the share price could go next.

Beating market expectations

Rolls-Royce’s FY23 results were exceptional, but its FY24 earnings might be even better. Operating profit soared 55% to hit £2.5bn, and free cash flow nearly doubled to £2.4bn. The balance sheet has also fully recovered. The firm now enjoys a net cash position of £0.5bn compared to a net debt burden of £2bn the year before.

Furthermore, shareholders were treated to a surprise £1bn share buyback plan for 2025 and the resumption of dividend payments for the first time since Covid-19 almost wrecked the business. Looking at these numbers together, it’s little wonder the Rolls-Royce share price is booming.

Having achieved some of its 2027 targets two years in advance, the board has also raised its ambitions across a variety of key metrics.

Source: Rolls-Royce

Can the growth continue?

A surging share price has pushed Rolls-Royce’s valuation higher. The blue-chip stock’s currently trading at a price-to-earnings (P/E) ratio of 26.5 and a forward P/E of 36.8. Those aren’t cheap multiples, which raises questions about the future growth trajectory.

However, the company’s forward guidance suggests these concerns might be unfounded. Large engine flying hours are expected to reach 115% of 2019 levels this year, driven by robust international travel demand. That’s crucial considering over 50% of the firm’s revenues comes from the civil aerospace division.

The outlook for the defence arm is equally rosy. Prime Minister Sir Keir Starmer’s committed to boosting UK defence spending to 2.5% of GDP by 2027. As one of the government’s preferred military contractors, this bodes well for Rolls-Royce shares.

Hopefully, we’ll see further good news following the firm’s biggest ever MoD contract win earlier this year. The eight-year deal is valued at £9bn. Rolls-Royce will provide design, manufacturing, and support services for nuclear reactors to power Britain’s submarine fleet.

Technological advances for the power systems unit provide further encouragement. Rolls-Royce has established itself as a market leader in small modular nuclear reactors. Potential growth opportunities for applications in space missions and energy-hungry data centres add another string to the company’s bow.

These reasons for optimism should be balanced against supply chain disruption for Trent 1000 engine parts, which could prevent the business from achieving its goals. In addition, recent technical faults for the firm’s engines raise safety concerns and reputational risks.

What I’m doing

Further growth in the Rolls-Royce share price isn’t guaranteed, but I see few reasons to sell my shares just yet. I’ve enjoyed some spectacular gains from my investment thus far, and I’m hopeful there will be more to come in the future. For investors who don’t own the stock, I think it deserves serious consideration.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Charlie Carman has positions in Rolls-Royce Plc. The Motley Fool UK has recommended Rolls-Royce Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Is this one of the best FTSE 100 stocks to buy right now?

Growing market panic is supercharging demand for safe-haven FTSE 100 stocks. Here's one I think could keep surging in price.

Read more »

Abstract 3d arrows with rocket
Investing Articles

Are these the best UK defence stocks to consider buying right now?

Looking for the best UK stocks to buy today? Investors should consider these defence contractors as we move towards a…

Read more »

Investing Articles

Just released: our 3 best dividend-focused stocks to buy before May [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

This FTSE small-cap stock could rise 61%, according to experts

A once-popular FTSE AIM stock has lost nearly half its value inside the past 12 months. Is it now worth…

Read more »

Market Movers

Here’s my preview for Tesla stock, down 5.75% yesterday, with earnings due today

With the quarterly earnings due out today, Jon Smith runs through three key points that he's watching out for that…

Read more »

Investing Articles

The 2025 market sell-off is a brilliant opportunity to build retirement wealth in a SIPP

Harvey Jones is scouring the FTSE 100 for bargain stocks to put inside his SIPP, and says this easily overlooked…

Read more »

Growth Shares

£350 a month invested in a Stocks and Shares ISA could be worth this much in 2030

Jon Smith explains a growth strategy for a Stocks and Shares ISA portfolio focused on investing in areas including AI…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Warren Buffett says market chaos is great for investors who keep their heads. Time to get greedy?

If you can keep your head when all about you are losing theirs, you could be a poet like Rudyard…

Read more »