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Rolls-Royce (LSE:RR) shares have had yet another barnstorming year, nearly doubling in value.
However, the year-to-date return was in triple figures until a recent wobble in European aerospace and defence shares clipped 5% off the share price.
Still, I mustn’t grumble. I first bought Rolls-Royce shares in May 2023 at 149p, then again more aggressively in August 2024 at 475p. Finally, I bought a few more at 630p earlier this year.
With the share price now at 1,100p, all these positions are well up and beating the wider FTSE 100.
So, should I make it a fourth year in a row and scoop up more shares in 2026? Or perhaps sell?
Does Rolls-Royce have growth left?
The first question I’m asking myself is whether Rolls-Royce still has solid long-term growth opportunities ahead of it. On this front, I think it’s a resounding yes.
Global travel demand is only going to keep rising over the next two decades, particularly in the Middle East and Asia. These are areas where rising middle classes are using more disposable income to travel the world.
The last time I was in Prague, for example, I was struck by the amount of Chinese tourists there. As such, it was no surprise to read that Chinese visitors to the Czech Republic surged almost 39% in the first quarter of 2025.
Rolls-Royce forms a near duopoly in the widebody commercial aircraft engine market, along with GE Aerospace. Therefore, the engine maker stands to directly benefit over time from this rising demand for long-haul aircraft.
Elsewhere, its defence unit has strong growth potential, as does its Power Systems division. The latter supplies engines and generators for data centres, marine use and more, and is expected to grow at about 10% a year moving forward.
Finally, there are Rolls-Royce’s small modular reactors (SMRs). These mini-nukes aren’t expected to materially contribute to earnings for a few years, but the growth opportunity in this industry is substantial.
These are the reasons I invested in the stock back in 2023, and I’m still bullish now.
What about valuation?
But is all this growth opportunity already priced in? Looking at the valuation, I would have to say probably yes. After nearly doubling this year, the stock is trading at 34 times next year’s forecast earnings.
Unfortunately, this leaves little room for error. If the company disappoints on any growth metric, investors could press the Sell button to lock in profits.
Needless to say, I hope that doesn’t happen. I hope the company beats expectations and raises guidance, sending the stock much higher.
But as things stand, I don’t see too much obvious value in the stock. My feeling is that the market is well up to speed with Rolls-Royce’s recovery and prospects.
Better opportunities elsewhere?
Of course, there are plenty of other things to consider when looking at a stock, including the balance sheet, management, industry trends, and various risks (supply chain issues for engine makers, for example).
Another consideration is whether there are better opportunities elsewhere for my money. Looking at the strong bull run and high valuation, I think there are in early 2026.
But that doesn’t mean I’ll sell my Rolls-Royce position. I’ll be reading February’s full-year earnings report before making a decision.
