To put it in context, the shares touched 1,420p last year and are now trading around 1,180p — still 16% below that peak.
What’s happened and are we looking at an opportunity?
The turnaround changed everything
It is worth pausing occasionally to remember how unlikely all of this is.
Four years ago, Rolls-Royce was a company in genuine distress — burning through cash, drowning in debt, hammered by a pandemic that had grounded the widebody aircraft its engines power. The shares fell toward 50p. Today, the market cap stands at nearly £100bn.
The transformation under CEO Tufan Erginbilgic has been remarkable by almost any measure. Revenue hit £21.2bn in 2025, up 12% on the prior year. Operating profit came in at £5.3bn, delivering an operating margin of 24.9%.
Free cash flow per share reached 42.4p. Net debt has not just been eliminated; Rolls-Royce is now sitting on net cash of £1.76bn. The dividend, reinstated in 2024, is expected to grow from 9.5p last year to 12p in 2026.
What’s weighing on the shares now?
So why only flat-to-down in 2026? A few things.
Firstly, let’s remember that stocks just can’t keep going on the same fast-paced trajectory forever — especially not at this scale.
Rolls shares had a very strong 2024 and 2025 — up 17.5% over the past twelve months even after recent weakness. A lot of good news is already in the price.
At 31.8 times forward earnings, Rolls-Royce is trading at a significant premium to the UK average. This means any wobble in the outlook gets punished.
In the short term, there has likely been pressure on the stock because of the war in the Gulf. Rolls earns more when its engines are being used more — that’s just the way the contracts work.
There has been a huge amount of disruption to air traffic in the Middle East, and higher fuel prices can lead to flight cancellations. It’s not just what’s happened already, it’s about what could happen if the conflict isn’t ironed out.
A permanent ceasefire would drive optimism.
A quality opportunity?
The quality of the business is not really in question. Return on capital of 28%, an operating margin approaching 25%, and a cash balance approaching £6bn tell a story of genuine operational excellence.
Analyst consensus from 18 brokers puts a target of 1,389p on the stock — about 17% above today’s price. Part of that will be benchmarking against GE Aerospace (and GE Vernova to a lesser extent) — the US listed companies that are essentially Rolls’s closest peer.
Whether investors agree is another thing as analysts can be wrong. Personally, I think Rolls is worth considering but investors must realise it’s might not be too far off its fair value. A lot of the value lies in the moat, the margins, and the prospect of small nuclear reactors.
