Rolls-Royce Holdings (LSE: RR.) shares have had another strong month, climbing 8.6%. Over the last year, they’re up more than 85%, but it’s the three-year performance that really takes the breath away — up 909%.
If an investor had caught this stock just right in June 2022, when it was still struggling, they’d have turned £10,000 into £100,900. That sort of growth can transform retirement plans and shows the sheer potential of individual share picking over passively tracking the market.
FTSE 100 growth star
Of course, picking a transformation stock like this isn’t easy. They’re rare and tough to spot. Oddly enough, I did spot the turnaround story and bought Rolls-Royce back in October 2022. Sadly, I didn’t transfer my retirement plans. But I was short of cash so only took a small position and chose to bank my 175% gain after a year when I needed some ready money.
That looked like the top to me, so I took the profit. But the shares kept climbing. I bought back in twice last August at an average of 485p. With the price at 872.8p today, that late trade is still showing a gain of around 80%.
On 10 June, the UK government confirmed its backing for Rolls-Royce’s small modular nuclear reactors. This adds yet another potential revenue stream, although Rolls needs other countries to come on board.
The company’s latest trading update on 1 May showed a strong start to 2025, and it stood by its 2025 guidance of £2.7bn to £2.9bn of underlying operating profit.
Large engine flying hours in Civil Aerospace hit 110% of pre-Covid levels. In Defence, demand remains robust. Power Systems is thriving. The firm has also completed £138m of its £1bn share buyback programme. It doesn’t seem so long ago that net debt was the big worry here. Not now though.
This stock is expensive
Rolls-Royce now trades on a price-to-earnings ratio of 44, which is expensive. Despite its stellar success, this isn’t a risk-free business.
Civil Aerospace depends on global travel demand. Any disruption, from economic downturns to geopolitical events, could hit engine orders and servicing revenue.
Power Systems is booming right now, but if demand from data centres drops, so could growth. The group is still under pressure to deliver its transformation under CEO Tufan Erginbilgic. Any missed milestones would raise doubts.
Steady outlook
The 12 analysts offering one-year share price forecasts have produced a median target of 859.6p. If correct, that’s a small drop of around 1% from today’s price.
Despite that, of the 14 analysts offering stock ratings, 10 call it a Strong Buy. Two say Hold, two say Sell. So confidence in the long-term growth story remains strong.
The pace of gains will almost certainly slow from here. A profit shortfall would do it. But I still think the transformation story has legs.
Since investors can’t buy at the old price, those considering the stock have to accept paying the new higher one. I’d think it’s still worth considering, possibly drip-feeding into the stock to take advantage of any dips.
