What goes up must come down, and that old saying must surely apply to Rolls-Royce (LSE: RR) shares. No stock flies upwards in a straight line forever, although the FTSE 100 aircraft engine maker is doing its best. Yet after the gains we’ve seen, some flattening is surely inevitable.
The share price is up an awe-inspiring 1,535% over five years and 110% in the past 12 months. Yet investors coming to Rolls-Royce today should probably accept that they’re not going to make a life-changing fortune by purchasing now. The market cap is nudging £100bn. If it doubled again, Rolls would become the biggest UK stock of them all. That’s a lot to ask, even of this one.
Despite that, investors are still buying. The Rolls-Royce share price is up another 5% in the past week, although that’s largely making up for a small dip.
FTSE 100 rocket
The sheer scale of investor excitement shows in the jaw-dropping price-to-earnings ratio of 57.6, far above the FTSE 100 average of 18. CEO Tufan Erginbilgic continues to deliver. Since his shock and awe start in January 2023, ‘Turbo Tufan’ has set ambitious targets and repeatedly smashed them.
The fun continues, with underlying operating profit up 50% to £1.7bn in the first half of 2025. The dividend is back, with an interim payout of 4.5p per share in September, alongside a £1bn share buyback. Rolls-Royce aims to return £1.9bn to shareholders during 2025, but it’s the growth investors are really after.
And there are substantial opportunities. Rolls-Royce is returning to the narrow-body aircraft market after more than a decade by developing a smaller version of its UltraFan engine. The shift opens huge potential but requires time, capital and effort. The group has a huge potential market in small modular nuclear reactors, which could be transformative if regulatory approvals and construction schedules align. Disappointing if they don’t.
Top momentum stock
Supply chain pressures and tariffs remain threats. Additionally, Rolls-Royce’s exposure to global aviation makes it sensitive to downturns in air travel demand or geopolitical shocks. Even its strong order books can’t fully insulate against broader economic or sector-specific disruptions.
Momentum breeds momentum, yet I sense the heady mood is calming. Analysts reflect this. Seventeen analysts offering one-year targets produce a median share price of 1,225p. If correct (it’s just a snapshot of views) that’s a modest rise of around 5% from today. No crash, though. Of 19 giving ratings, 14 say Strong Buy, five say Hold, and just one says Sell.
I think Rolls-Royce is worth me holding, but only with my long-term hat on. Investors like me must accept that recent stellar returns could reverse. At today’s dizzying highs, a single earnings miss or operational hiccup could cause a sharp correction. Even a crash. That’s a risk with any stock of course.
Rolls-Royce has delivered remarkable performance, yet after such an extraordinary run, the shares must slow. Investors might still consider buying today, but only with the understanding that the company is in a different place today. Others may prefer to hunt for the next big FTSE 100 recovery opportunity. I can see a lot of potential out there.
