Are Rolls-Royce (LSE: RR.) shares heading for a correction? Many onlookers are saying as much. And – taking a look at how the share price has surged over the last three years – it’s hard not to wonder whether they’re a touch overbought:
The share price is up over 1,000% in only three years. Many believed FTSE 100 stocks weren’t capable of pulling off such a feat these days. So has the excitement around the British engineering firm turned into hysteria? And is January 2026 therefore the time to sell my Rolls-Royce shares?
Bear case
First, let’s give the devil his due and address the bear case: the stock isn’t the bargain basement value pick it was just a few years back.
After three years of stunning growth, the forward price-to-earnings ratio has crept up to 40. This means a lot of future growth is baked into the share price. If the growth doesn’t come? Trouble ahoy.
One cause for concern might be that Rolls-Royce has had plenty of good luck of late. All its major divisions have seen an uplift in earnings and orders, often from factors outside of its control.
Passenger airplane engines? Global flight numbers are hitting new records. Defence? Governments are gearing up to spend at levels not seen since the Cold War. Power systems? Rolls-Royce is benefitting from the demand for its products in sustaining the huge energy needs of AI data centres.
While we have to give credit to the management team — especially transformative CEO Tufan Erginbilgiç — for their role in overseeing the rise, the next few years might not be as fortunate as the last few.
Winners
Am I selling then? Not a chance! That’s because my mantra here can be neatly encapsulated in that famous investing motto: let your winners run.
It’s a tempting thought to do the opposite. When you have a stock that’s going great guns? Sell and take the profit. When you realise a gain – it’s an instant win, isn’t it?
But this kind of thinking falls flat for me for two reasons. First, there’s an element of timing to it. What I mean is the uncertainty of knowing just when to sell? This creates an extra risk. And timing in the investing world is difficult at the best of times.
Second, despite the element of ‘right time, right place’, some of the factors that contribute to good stock performance now are likely the same that will contribute to it later too. I’m talking about things like good management, good company culture and the like.
This can be exemplified by the trajectory Rolls-Royce shares. I remember seeing calls of them being overpriced when they were at £4. Anyone who sold would have been feeling a touch regretful as they surged to £13 in double-quick time.
To sum up? No, I’m not selling and still believe they may be worth considering.
