It has been a phenomenal few years for aeronautical engineer Rolls-Royce (LSE: RR). The shares were among the best-performing on the FSTE 100 over the past several years. Yet, even coming into 2025 with that track record, they have done brilliantly again. The Rolls-Royce share price is up 86% since the turn of the year.
Not only have the shares had stunning momentum in recent years, but the business performance has also been impressive.
Missed opportunities
As 2024 loomed, I thought to myself, “should I buy Rolls-Royce shares?” and decided against it, missing out on a year of massive growth.
As 2025 loomed, I thought the same thing, again did nothing – and again missed out on a storming performance.
Now, with 2026 on the horizon and eyeing the five-year Rolls-Royce share price gain of 741%, I am (surprise, surprise) asking myself the same question.
Could now be the time for me to add some Rolls-Royce shares to my portfolio?
Price does not look unjustifiable
Looking at an aeroplane’s vapour trail does not necessarily indicate where it will go next. It can change course.
The same is true for share prices. Rolls-Royce’s excellent performance in recent years is no assurance of what may come next.
However, what I do find interesting is that despite that 741% gain over five years, today’s Rolls-Royce share price-to-earnings ratio is 16.
That is not a screaming bargain. But I also do not think it is necessarily expensive for a proven blue-chip business with ongoing growth prospects.
Lots to look forward to
In recent years (and again this year), Rolls-Royce has raised its medium-term outlook. It has also consistently delivered on its financial targets, boosting City confidence in the company’s management.
Just a few weeks ago, it affirmed its full-year 2025 outlook of £3.1bn-£3.2bn in underlying operating profit and £3.0bn-£3.1bn in free cash flow.
With demand buoyant in civil aviation and defence, plus resilient long-term demand in power systems, all three of Rolls-Royce’s business divisions have the wind at their back.
Add to that the company’s sharpened financial discipline of recent years and focus on financial delivery and I see the investment case as strong.
Staying on the sidelines
So on that basis, I reckon the Rolls-Royce share price could continue its upwards march in 2026.
Still, there are a couple of things that put me off investing, meaning I will stay on the sidelines for now.
One is, ironically, how well the share has been doing.
Part of that is undoubtedly about business performance but some of it is also momentum. Momentum can suddenly change, even when a business does well.
Accordingly I see a risk that the Rolls-Royce share price could be hammered even if the company slightly disappoints the market in any way.
Another risk that concerns me is the prospect of any slowdown in civil aviation demand. That has been high in recent years, but geopolitical spats and tightening consumer budgets could potentially lead to a slowdown.
The industry occasionally also gets blindsided by dramatic overnight demand falls that are unforeseen, as during the pandemic and after terrorist attacks.
Bearing those risks in mind, I am not going to be buying Rolls-Royce shares as we head towards 2026.
