The Rolls-Royce (LSE:RR) share price has been flying high in 2025, leaving many investors wondering whether there’s still room for the company’s market cap to soar even further.
Let’s take a look at what’s been happening to the FTSE 100 market darling so far this year and whether it’s still one for investors to consider despite the recent gains.
What’s happening to the Rolls-Royce share price?
The turnaround story at Rolls-Royce has been remarkable. The company posted a 50% jump in underlying operating profit for the first half of the year, rising to £1.73bn from £1.15bn a year earlier. Margins have also improved sharply, up to 19.1% compared to 14% in the year prior.
That performance has powered expectations, with full-year profit guidance holding firm at £2.7bn to £2.9bn. Investors have also taken note with the Rolls-Royce share price soaring to new 52-week high of 1,196p on 29 September.
Valuation
The current share price reflects a lot of optimism. Rolls-Royce trades on a trailing price-to-earnings (P/E) ratio of 17. At first glance, that’s not too far outside the Footsie average, but a forward P/E ratio of 53 is harder for value investors to justify.
Of course, everything is about relative value. The broader aerospace and defence sector has an average P/E ratio of around 34. These figures clearly suggest the market is pricing in years of continued strong growth for both the industry and Rolls-Royce.
Whichever way you look at it, the company doesn’t look cheap. There’s little in the way of a dividend to sweeten the deal either, as Rolls only recently declared its first dividend since the COVID-19 pandemic.
In other words, this is firmly in growth stock territory now. Investors are betting on rising profitability, expansion into nuclear energy, and sustained demand from civil aviation and defence.
I personally think there is plenty of potential growth from higher defence spending and the company’s dominance in the commercial space, but it’s not without risk.
My verdict
There’s no doubt the Rolls-Royce share price has had a blistering run. But that doesn’t mean the rally is over. This is a fundamentally different business from a few years ago. I think it is leaner, more focused, and finally turning strong profits.
For investors who believe in the long-term growth potential of sectors like defence and nuclear, and the company’s dominant position in aerospace engineering, then paying up today could still prove to be smart over time.
That said, any slip-up in execution could rattle confidence. When a stock is priced for perfection, even a small disappointment can have a big impact. Any earnings slip ups or change in the sector outlook could cause investors some pain.
Still, for those backing the direction of travel, Rolls-Royce shares — even near an all-time high — might just be worth it.
