Image source: Rolls-Royce plc
The Rolls-Royce Holdings (LSE: RR.) share price has soared 83.4% so far in 2025 by the time of writing (2 December). That means every £10,000 invested in the shares as the 2025 New Year opened is now worth £18,340.
Compared to the 793% the Rolls share price has skyrocketed over five years, that might not sound a lot. But it’s really a cracking annual performance.
But with the shares down around 13% from their 52-week high of 1,196p in September, is it time for shareholders to sell and pocket their profits? Or maybe buy more?
Tricky to value
Forecasts for a year ahead put the price-to-earnings (P/E) at 32, based on the current Rolls-Royce share price. But it’s not so easy to decide if that’s good value. Rolls operates in three divisions — aero engines, defence, and power systems. And nobody else really covers all three.
Checking US giants GE Aerospace and RTX (the owner of Pratt & Whitney), we see forward P/E ratios of 37 and 30 respectively for a year ahead. On that score, Rolls doesn’t look overvalued.
But compare with defence competitor BAE Systems, and its forward P/E multiples down in the low twenties might make Rolls-Royce look a bit pricey.
Outlook
No two of these companies are quite the same, however, so we have to look to what the future for Rolls-Royce might bring. For the full-year ended December 2024, we saw profit before tax of £2.23bn. Analysts expect that to soar to £4.25bn by 2027. That’s a stunning 90% hike in just three years.
For diluted earnings per share (EPS), we saw 29.87p. Forecasts have that climbing 29% over the same three-year period. Not as big a jump, but still very impressive if it comes off.
We had a trading update in October, including guidance for the current year. CEO Tufan Erginbilgiç said: “Strong performance across the group, driven by our actions and strategic initiatives, was in line with our expectations. This builds further confidence in our full year 2025 guidance of underlying operating profit of between £3.1bn and £3.2bn and free cash flow of between £3.0bn and £3.1bn.”
We’ll have to wait until 26 February to see how that relates to bottom-line reported figures.
Uncertainty
There’s one main uncertainty for me. And that’s Rolls-Royce’s nuclear power systems. Its small modular reactors (SMRs) look very promising. And with that update, the company told us its SMR is in “the final stage of the Swedish competition to select a nuclear technology partner.” It’s already been chosen as “the preferred technology provider by Great British Energy-Nuclear“.
But we’re still in very early days, and profit is some way away. And I can’t help wondering if there might possibly be an AI bubble factor here, with SMRs being likely candidates for powering energy-hungry data centres.
Still, Rolls-Royce has a very healthy balance sheet. And net cash is forecast to keep piling up over the next few years. Overall, I still see a good case to consider Rolls-Royce for a long-term investment even now.
