One of the stunning stock market success stories of the past few years has been the turnaround at Rolls-Royce (LSE: RR). Rolls-Royce shares have been on fire! They are up 9% over the past month alone.
As a long-term investor, though, I prefer to look at a longer timeline than a month when making investment decisions.
Massive wealth builder
Over five years, Rolls-Royce shares have performed brilliantly, helping to build wealth for many investors.
During that period, they are up by 1,252%.
The share price has moved up 112% since the start of last year. So, an investor who put £15k in at the beginning of last January would now be sitting on a shareholding worth around £31,800.
Rolls pays a dividend, albeit the 0.6% yield is pretty unexciting. But an investor who got in at the start of last year would be earning a higher yield on their initial investment, of around 1.3%. So they would be earning roughly £190 in dividends annually.
If the business continues to do well, as it has been doing, I reckon the dividends could grow in years to come.
What’s the magic sauce here?
Coming into last year, there was an argument to be made that Rolls had already had its strong stock market run, so it might fizzle out.
It had been among the best-performing big shares in both 2023 and 2024, after all, so would it be able to pull off another strong performance in 2025?
As we now know, it certainly did. That has got me wondering what we might see Rolls-Royce shares do this year, in 2026. So far, they have already hit a new all-time high.
How has the company managed to do it?
The answer is a mixture of internal and external factors.
Internally, management has been laser-focussed on setting then meeting some challenging financial targets. Rolls has become a more strategically focussed company than it was a few years ago, with some costs stripped out and a much healthier balance sheet.
Externally, it has had the wind in its sails thanks to demand recovery in civil aviation, a robust market for power systems, and rapid growth in the level of defence sales in Europe.
Should I invest now?
Those factors, both internal and external, could continue to help the investment case.
That in turn might mean that Rolls-Royce shares continue their upwards march, potentially hitting further new record highs in 2026.
Still, at 18 times earnings, I do not think the share price is a bargain. One of the risks that concerns me is what brought the company to its knees in 2020: a sudden and unexpected collapse in civil aviation demand globally.
That is outside the company’s control and could happen again, whether due to a pandemic or terrorist event. At the current price, I do not think Rolls-Royce shares offer me the right margin of safety for that risk. So, I will not be buying any.
