The Rolls-Royce (LSE: RR) share price has finally lost its sparkle. It fell 4% last week and is up less than 7% over six months.
That’s a wake-up call for investors dazzled by how well the shares have done over the last five years, climbing an astonishing 1,328%.
That’s a thrilling return, but it’s history now. Investors buying today can’t expect anything like that kind of return. There’s another issue. Despite the recent dip, Rolls-Royce shares remain expensive, trading on a price-to-earnings ratio of 46. That’s down from 66 at the start of the year, but it’s still a toppy valuation. CEO Tufan Erginbilgic has to keep profits, revenues and free cash flowing to impress investors. Can he do it?
Will this FTSE 100 stock keep climbing?
He’s done it before, smashing guidance in both 2024 and 2025, as this table shows:
| Profit guidance | Profit actual | |
| Full-year 2024 | £1.2bn to £2.3bn | £2.46bn |
| Full-year 2025 | £3.1bn to £3.2bn | £3.46bn |
Rolls-Royce has enjoyed growth across all three of its divisions. Civil Aerospace has seen a strong recovery in aircraft engine servicing revenues. The surge in demand for energy-hungry AI data centres has lifted its Power Systems division, while Defence has benefited from today’s geopolitical tensions.
The group has now cleared all its post-pandemic debt, restored the dividend and is planning a share buyback worth between £7bn and £9bn between 2026 and 2028.
Erginbilgic is also pursuing two further growth opportunities, both potentially huge. He’s targeting a return to the short-haul, single-aisle narrowbody aircraft engine market and hopes to build 400 small modular reactors, or mini-nukes, worldwide by 2050. It’s good to see a Footsie company with ambition but there are execution risks and the capital investment will be huge too.
Rolls-Royce also remains vulnerable to geopolitical shocks, especially if conflict in the Middle East triggers further airspace closures. Demand from AI data centres could also cool if the technology fails to live up to the hype.
What do the experts say?
Yet of the 19 analysts issuing stock ratings over the past three months, the vast majority remain positive:
- Strong Buy: 15
- Buy: 1
- Hold: 3
- Sell: 0
- Strong Sell: 0
The 17 analysts offering one-year share price forecasts produce a consensus target of 1,526p. If correct, and these are only educated guesses remember, that would represent solid growth of 11.7% from today’s 1,366p. Add the forecast 2026 dividend yield of 0.9% and the total return rises to 12.6% by July 2026.
That would turn a £9,999 investment today into £11,269. A gain of £1,270 is perfectly respectable but a far cry from the glory years.
Rolls-Royce is a brilliant British company, but given the pricey entry point I’d be wary about throwing too much cash at it today. It may be better to consider drip-feeding money in, taking advantage of any dips to bag it at a less daunting valuation. Alternatively, hunt down the next big FTSE 100 or FTSE 250 growth opportunity.
Should you invest £5,000 in Rolls-Royce Plc right now?
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Harvey Jones owns shares in Rolls-Royce Holdings.
