From being close to extinction three years ago, Rolls-Royce (LSE:RR) shares have come a long way. The company’s market cap now exceeds £90bn, and the share price momentum has been truly exceptional.
This is thanks to an improving climate for the aerospace sector, long-term commitments in defence spending, and an operational turnaround with a renewed focus on creating a leaner company that could command a higher valuation.
However, with the stock up around 14 times since then, it’s probably trading closer to its fair value than it has at any point over the past three years. And that’s pushing me to ask: are there other industrial stocks in the UK that could outperform Rolls-Royce shares?
Here are some ideas.
Bodycote
Bodycote (LSE:BOY) may not grab headlines like Rolls-Royce, but it could be worth considering. The heat-treatment specialist’s H1 2025 results were largely positive despite a 7.5% revenue dip, as CEO Jim Fairbairn’s Optimise, Perform & Grow strategy gathers pace.
Investors were glad to see that cost savings are running ahead of plan, with site rationalisations and a French £20m asset sale bolstering efficiency. Crucially, aerospace and defence demand is offsetting weakness in autos and general industry, positioning Bodycote well for recovery.
Trading at just 13.5 times adjusted forward earnings, falling to 12 next year, the valuation looks undemanding. A near-4% dividend yield, coupled with buybacks and a solid balance sheet, strengthens the investment case.
Risks include prolonged industrial softness and reliance on cyclical aerospace demand. But Bodycote could be a more balanced industrial pick for long-term investors than Rolls-Royce.
Melrose Industries
Melrose Industries (LSE:MRO) has been quietly impressing the market in recent months. H1 2025 results showed adjusted operating profit of £310m, up 29% year on year and well ahead of forecasts, with margins rising to 18%. Cash flow also strengthened, despite supply chain bottlenecks and tariff pressures. Engines revenue grew 11%, while Structures rose 3%.
Management is targeting over 20% annual earnings growth through to 2029. With a current price-to-earnings (P/E) ratio of 15.2 and a price-to-earnings-to-growth (PEG) ratio of 0.75, this stock looks great on paper. Rolls-Royce, by comparison, trades closer to 40 times forward earnings, with a PEG ratio over two.
The stock is now trading around 10% below the average share price target, but I believe it could go much higher. It has all the hallmarks of a top-quality company, the market just needs further evidence of its operational strength.
Risks remain, particularly around aerospace supply chains, tariffs, and currency moves. Net debt is also sizeable, at around £1.4bn. However, with sole-source positions on 70% of its sales and operating leverage improving, Melrose could be a stronger long-term industrial pick than Rolls-Royce. It’s certainly worth looking at more closely.
My take
I like industrial stocks, especially ones with strong economic moats. Personally, I believe all three of these companies are worth considering, but I do believe Bodycote and Melrose could outperform as the market looks for industrial alternatives.
