Rolls-Royce (LSE:RR) shares continued their impressive run of the last few years in 2025. Last year, the company’s shares saw a massive 95.4% gain.
If an investor put £5,000 into its shares at the start of this run, they would have £9,768 today.
What’s even more insane is that the aircraft manufacturer has seen its shares soar by 1,133.4% since the start of 2023.
Our £5,000 investor would have seen the value of their shares hit £61,670 in that time. By now, you probably get the power of investing in high-quality shares over a number of years.
However, can Rolls-Royce shares have another year to remember for its shareholders? More specifically, can they grow by a further 47.9% to £17?
Long-term growth drivers
Over the long term, Rolls-Royce has plenty of catalysts that can maintain the company’s upward trajectory.
Firstly, the company’s largest source of revenue, its civil aerospace division, is continuing to see superb growth since the pandemic a few years ago. In its latest half-year results, revenue from the segment increased by 17% year on year.
Furthermore, air travel demand is expected to continue growing, with passenger traffic estimated to increase by 4.9% in 2026. This is good news for the aircraft engine manufacturer.
Secondly, and most unfortunately, global conflicts have been on the rise. With NATO countries committing to raising their defence budgets to a higher proportion of their GDPs as a result, Rolls-Royce’s defence division could benefit.
Thirdly, and most excitingly in my opinion, is the firm’s investments in small modular reactors (SMRs). The company is doing very well in this field, where it already has agreements with governments, such as the UK and Czeck Republic, to provide them with SMRs.
This is a technology where nuclear energy moves away from a large and complex infrastructure project into a commoditised factory-built product. There are many benefits to it, such as it being cleaner for the environment.
Anticipation is that this will be a huge industry. Four hundred SMRs are expected to be required globally by 2050, with each costing $3bn.
AI and its data centres will also need to be powered. This provides a huge opportunity to Rolls-Royce SMR and its power division, which grew 20% in its latest half-year results.
Concerns
I have a couple of concerns with respect to Rolls-Royce shares.
Notably, the SMR technology discussed above is unproven in terms of its effectiveness. So, while it’s an exciting prospect, it could also be detrimental to the company’s share price if it’s not effective.
Moreover, the firm’s shares are pretty expensive. They currently sport a price-to-earnings ratio of 36.5. If its share price rises by 47.9% to hit £17, it will become even more expensive. This is especially the case as its earnings are only forecast to grow by 15.8% in the next financial year.
Prediction
I think Rolls-Royce is an excellent company that could be a great long-term investment.
However, I don’t think it will come anywhere close to reaching £17 by the end of the year. This primarily stems from my valuation concerns.
If the inconsistency between the share price and earnings growth continues, it will make its shares too expensive.
Therefore, I think the company’s shares will stabilise around the current price by the end of the year.
