Last year was a great one for shareholders in Rolls-Royce (LSE: RR). So was the year before that. And the year before that. With the Rolls-Royce share price having hit a new all-time high today (12 January), could 2026 turn out to be another brilliant year for investors in the aerospace company – and should I join them by picking up a few shares for my portfolio?
Years of good news
It is helpful to understand just why the Rolls-Royce share price has done so well in recent years.
During the pandemic, as passenger numbers collapsed, airlines deprioritized spending money on new engines. Engine flying hours also fell, meaning there was less demand for costly engine servicing, which typically happens after a set number of flying hours.
Rolls-Royce has other strings to its bow, such as power systems and defence sales. But civil aviation is key to the business.
So the pandemic-era fall in passenger numbers brought the company to its knees. It bled cash, issued new shares to raise funds, and sold off some assets.
But as civil aviation bounced back to life, demand for both engine sales and servicing picked up.
Power systems demand continues to grow. Defence demand was already robust but has strengthened in response to the security environment of recent years.
So, Rolls has had the wind in its sails when it comes to customer demand. It has also helped itself, by focusing on financial discipline and an ambitious set of targets.
By consistently meeting investors’ expectations, Rolls-Royce has enabled its share price to move up by 1,120% in just five years.
Room for further growth
Does that mean it is overpriced? Not necessarily!
In fact, the current Rolls-Royce share price-to-earnings (P/E) ratio is 19.
That is cheaper than some defence-focussed rivals like BAE Systems.
The P/E ratio is based on current earnings, but Rolls-Royce forecasts that it will improve its financial performance in coming years. So the prospective P/E ratio may offer better value than is suggested by the current number.
So what we are looking at here is a profitable, well-run company with a large installed user base, large contract sizes, and a plan to grow in coming years.
If the firm keeps delivering the way it has over the past several years, I can see room for the Rolls-Royce share price to move up further from here — perhaps substantially, depending on how strongly the business performs.
Why I’m not investing
Will things go according to plan?
Historically, Rolls was an inconsistent performer. Partly that was due to the swings in demand for civil aviation engines, many of them largely or wholly outside the company’s control.
The pandemic and its impact on travel was one example. Terrorist attacks in 2001 were another, and even a bad recession often leads to marked falls in passenger numbers.
Such events can happen at any time without notice and I see that as a risk to Rolls-Royce’s revenues and profits.
The current Rolls-Royce share price does not offer me the margin of safety for that risk I would want, so I will not be investing.
