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Over the course of October, the Rolls-Royce (LSE:RR) share price fell 1%. This might not seem like a lot, but given the 118% rise over the past year, having four weeks without a rally is somewhat unusual. Here’s why the stock struggled to push higher and what could happen from here.
Caution ahead of results
The next set of financial results for the company is due out next week. After a year of stellar performance and upgraded guidance earlier in 2025, I feel investors are becoming more cautious about whether the company can sustain that momentum. In some ways, it reminds me of Nvidia. The excitement from investors and the high bar of expected growth for Nvidia mean it’s harder for the stock to rally even after posting some excellent results.
Therefore, I believe some of the stagnation in Rolls-Royce shares in October stemmed from the perception that much of the positive news leading up to the earnings had already been factored into the price. In other words, there was a lack of demand to buy more of the stock as it already reflects an optimistic outlook.
Valuation concern
Another reason for the move in October may be concerns about the company’s valuation. The current price-to-earnings (P/E) ratio is 57. This is over triple the average P/E ratio of the FTSE 100.
I’m not saying that October marked the end of the rally for the stock, but there will come a time when investors will take a breather. Last month, I think some investors decided to book profits and sell the stock, which is entirely fine. The move is natural and healthy, as part of a longer-term trend for the stock. No share price can simply go up every single day. Periods of time when the stock falls modestly are ok and don’t need to be a source of panic.
The direction from here
In terms of the period through to the end of the year, I think a lot will depend on the financial results released shortly. However, over the coming year, there are several reasons why the rally could continue.
For example, the multi-year transformation plan is ongoing. Sure, it has already yielded some results. Yet the company could still have further profit margin expansion ahead, particularly in the civil aerospace and power systems segments. Let’s not forget that the civil aerospace division benefits directly from global long-haul air travel demand, which remains on an upward trend post-pandemic.
The business also recently started paying out dividends again. The current dividend yield of 0.51% isn’t much to shout about. But if more income gets paid out and this rises, the stock could be bought by dividend investors. This could add further support for the price, as it’s not just buyers looking for growth shares who would be interested.
The bottom line for me is that October was likely a temporary blip for the share price. Indeed, this could continue through to the end of the year, but I still believe the long-term future is bright for Rolls-Royce. Therefore, I think any further dip in the coming weeks could be an opportunity for investors to consider.
