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Since September 2022, Rolls-Royce (LSE: RR.) shares have soared more than 1,300% in one of the most dramatic rallies in recent FTSE 100 history. Other than the odd hiccup — such as when US President Trump announced trade tariffs in April — the trajectory has been smooth.
But after hitting a record high of 1,111.5p in mid-August, the shares took a dive and have struggled to climb back above that level. For a company used to breaking fresh ground almost every week, the sudden stall has raised eyebrows.
Of course, a pause in momentum isn’t new. Back in December 2024, the stock moved sideways for nearly two months before another rally. And in July last year, it suffered weeks of losses before bouncing back in August. The question now is: could this latest lull be just another pause or does it signal something more meaningful?
Global markets
Part of the story may lie in broader markets. The FTSE 100 itself is slightly down after a 52-week high of 9,357 points in mid-August. Across the Atlantic, the S&P 500 is charging forward. On Wednesday (10 September), it hit a new record of 6,555.97 points, taking its yearly gain to 11.5% — catching up to the Footsie after lagging behind for much of the year.
A big factor has been oil, with Brent crude futures up 1.7% to $67.49 a barrel this week. Another unlikely contributor is Oracle, which stunned Wall Street with a 36% jump — its biggest single-day rise in 30 years+. Investors may simply be rotating back into US tech after a heavy run on UK industrials.
But I don’t think the Rolls-Royce growth story is over.
No slowing down
In the past month alone, the company has announced a flurry of new developments. The UK government secured a £13.5bn deal to supply assets to the Norwegian navy, which is expected to support 4,000 jobs across Britain’s supply chain well into the 2030s and provide a £10bn boost to the economy. While details are scarce, Rolls is almost certain to play a major role.
On home soil, it’s also expanding its Derby site, selecting Balfour Beatty to spearhead construction. Meanwhile, the firm signed a Skills and Technology Agreement with Western and South Australian governments to boost aerospace expertise.
Most recently, Rolls unveiled an expansion of its partnership with Avio Aero in Italy and IHI in Japan, aimed at accelerating development of next-generation aircraft propulsion systems.
These are hardly the moves of a company that looks ready to ease off the throttle.
Looking ahead
That said, it’s hard to ignore how stretched Rolls’ valuation has become. Its forward price-to-earnings (P/E) ratio is up to 38.3 – nearly double its trailing figure. Plus, its price-to-book (P/B) ratio of 38.7 is the third-highest on the FTSE 100, so the stock already looks very high-priced.
Add in the fact that Rolls has underperformed some of its aerospace rivals over the past month, and the risk is clear. Any shift in defence budgets or the loss of a key contract could weigh heavily on profits.
Yet the long-term thesis remains strong. Rolls has a busy pipeline of projects and an ambitious roadmap stretching years ahead. Yes, the explosive growth phase may be tapering off, but it still looks like one of the more compelling UK companies for long-term investors to consider.
