Few stocks on the London Stock Exchange have created wealth quite like Rolls-Royce (LSE:RR.) shares in recent years. The engineering giant has sent its market-cap skyrocketing by over 1,100% since the start of 2023. And even in the last 12 months, the shares are up close to 50%.
But is the growth story now over? Or are Rolls-Royce shares getting ready to double once again?
The bull case is hard to ignore
Three powerful tailwinds are pushing each of Rolls-Royce’s core divisions forward. Long-haul flying demand continues to recover robustly, and Rolls-Royce’s large installed base of engines generates strong and recurring aftermarket revenues every time a plane flies. And it’s why underlying civil aviation revenues grew by another 24% organically in 2025.
The second tailwind is defence spending. With European nations scrambling to modernise their militaries in response to a deteriorating geopolitical environment, Rolls-Royce’s defence segment has already seen its order book grow drastically, with the company sitting at the heart of the rearmament wave.
The third factor is the group’s remarkable operational transformation. Since moving into the corner office, CEO Tufan Erginbilgiç has driven a relentless focus on margins and efficiency. The result has been a massive resurgence in free cash flow that’s on track to reach as high as £4.5bn by 2028.
Assuming the target’s hit, it not only helps resolve Rolls-Royce’s long-standing debt problem but also gives leadership enormous volumes of financial flexibility to reinvest and explore new ventures, including its promising small modular reactor technology.
Can Roll-Royce double again?
It’s easy to understand why the pros are bullish about this business. But for investors hoping for Rolls-Royce shares to double again, it isn’t going to be an easy feat. After all, that requires the company to grow its market-cap from around £95bn right now to £190bn. That isn’t impossible, but it’s likely going to take a lot longer than a single year.
With the group’s 2028 targets already baked into the share price, the business would need to either vastly exceed these expectations or trigger a re-rating for its valuation multiple.
A multiples upgrade seems unlikely given its forward price-to-earnings ratio already sits at a lofty 29.8 times. As for beating expectations, that too looks a bit unlikely in the near term.
There’s no denying that management has developed a knack for exceeding its own targets in recent years. But with the ongoing conflict in Iran and the enormous supply chain disruptions it’s created, particularly for jet fuel, the group’s flagship civil aerospace segment looks vulnerable to a slowdown.
This impact may ultimately be offset by higher defence spending. But it nonetheless makes overall growth a lot harder compared to previous years. And after delivering an 12x return over the last three years, any surprise disappointments could be punished harshly.
The bottom line
As a business, Rolls-Royce is genuinely impressive. But as a stock, I think it might have some tough times ahead. Having said that, if a slowdown does materialise and the share price slides, then that could present a lucrative and exciting entry point for long-term investors looking for a quality compounder.
That’s why, for now, I’m keeping it on my watchlist.
