Can anything stop Rolls-Royce (LSE: RR) shares? Since autumn 2022, they’ve surged an astonishing 1,600%. A £10,000 investment back then would be worth £170,000 today.
Mind you, an investor would have had to be brave to invest a five-figure sum at that point.The FTSE 100 aero-engine maker had only just pulled back from the brink after the pandemic grounded global aviation.
Today, buying Rolls-Royce today requires a different kind of bravado. Investors are betting that having worked wonders, the FTSE 100 growth monster can work still more of them. Is that possible?
FTSE 100 growth star
I’ve wrestled with that question. I’m naturally wary of momentum stocks. I put a small sum in Rolls-Royce in October 2022, then a much bigger one 18 months ago. I braced myself for a fall. Instead, the shares climbed another 175%. Anyone who bought a year ago has doubled their money. Bought one month ago? The shares are up 8%.
It just keeps climbing but so does the price-to-earnings (P/E) ratio. I thought it looked toppy when it shot past 50. Now it’s at 65. That’s nosebleed territory, to use the not-so-technical term. Even the forward P/E for 2026 stands at 40. Still a challenge for those nasal passages.
Of course, performance has been exceptional. In 2024, underlying operating profit jumped 57% to £2.46bn. Free cash flow surged 88% to £2.43bn. Management treated investors to a £1bn share buyback.
But sentiment plays a role too. Rolls-Royce has become the standout growth story in the FTSE 100. Success attracts attention, which generates momentum, which attracts more buyers.
Next week (26 February) brings Judgement Day, when Rolls-Royce publishes full-year 2025 results. Imagine lots of hens doing their thing. Then a fox rocks up. That’s what Thursday could look like.
February 26 is a huge event
CEO Tufan Erginbilgic has guided to underlying operating profit of £3.1bn-£3.2bn, and free cash flow of £3bn-£3.1bn. These are the key numbers to watch. If Rolls-Royce blasts through them and beyond, and the shares could soar still higher. But if they merely come in as expected or, heaven forbid, fall short, investor groans will be heard from space.
I suspect Rolls-Royce will beat those numbers. We’ll know soon enough. Thursday will be… let’s say, interesting.
So would I buy Rolls-Royce shares before then, to benefit from any bump? Nope. I’ve already got enough resting on this one. Forecasts are cautious, and understandably so. The 18 analysts offering one-year share price forecasts produce a median target of 1,333p. That’s pretty much where the stock stands today.
Mind you, 13 of those analysts still rate Rolls-Royce a Strong Buy, one more says Buy and four say Hold. No sellers. Betting against Rolls-Royce has been a losing play for too long.
Personally, I’m in the Hold camp. I feel like an astronaut strapped into a rocket ship, wondering how this journey will end. But I wouldn’t have missed it for the world. Not sure I’d hop on board now though. Gravity must assert itself at some point.
I can see more tempting growth prospects to consider on the FTSE 100, and they’re a lot cheaper too.
