Image source: Rolls-Royce Holdings plc
The Rolls-Royce (LSE:RR.) share price has done it again in 2025. It’s almost doubled in price since 1 January, and is now up a staggering 933% during the past five years.
The FTSE 100 company’s made a lot of investors rich in the process. But while the civil aerospace and defence markets remain rock solid, City analysts reckon the engineer’s price momentum is about to cool sharply.
Right now 14 analysts have ratings on Rolls-Royce shares. The average 12-month price target among them is £12.64 per share, up 10% year on year.
This reflects the company’s sky-high valuation following this year’s additional gains. At 40.7 times, its forward price-to-earnings (P/E) ratio is miles above the 10-year average of 14.9 times.
For investors seeking better price action in 2026, I think Melrose Industries (LSE:MRO) and Sage Group (LSE:SGE) might be better stocks to consider. Want to know why?
Taking off
Investors who want to stick with engineering shares might want to look at Melrose Industries for 2026. The average 12-month price target here is 967p, up 19% from current levels.
I’m not surprised by the City’s bullishness. With a sub-1 price-to-earnings growth (PEG) ratio of 0.7 for 2026, the firm has scope for significant price gains next year.
To put that low PEG into perspective, the corresponding ratio on Rolls-Royce shares is significantly higher, at 2.3.
Like Rolls, the company — which owns aerospace play GKN — faces extreme supply chain challenges. Yet Melrose’s growth opportunities are similarly enormous, given rapid improvements in global defence budgets and the long-term outlook for civil aerospace.
Airbus expects more than 43,000 new passenger and cargo planes will be needed between now and 2044 to meet traffic growth and replace ageing aircraft.
I’m especially excited by strong momentum at Melrose’s Engines division, a strong share price driver this year. Operating margins here leapt 400 basis points in the first half, to 33.4% on rising revenues and a better sales mix.
23% share price gains
If City forecasts are accurate, Sage Group might deliver even better share price gains than Rolls-Royce and Melrose.
An average 12-month price target of £13.28 per share suggests a 23% uplift from current levels.
But what could stop the shares hitting this level? With a forward P/E ratio of 21.8 times for this year, Sage shares look expensive on paper. As with Rolls, some could argue this might limit opportunities for price growth.
It’s not a fear that I share. This is because Sage’s P/E is still significantly below its long-term average of 34 to 35 times. In fact, the business software specialist looks like a bargain to me at today’s prices.
Sage’s share price has plummeted in 2025 as fears over the broader tech industry have grown. Its heavy investment in AI could really backfire too if fears of a sector bubble prove correct.
I think this year’s share price drop is unjustified though, and expect it to recover sooner rather than later. Trading remains rock solid — annual recurring revenues leapt 11% in the 12 months to September — amid encouraging demand for its cloud and AI products.
And I think sales could take off in 2026 if global growth accelerates, as some predict. On balance, I think there’s a great chance Sage outperforms Rolls-Royce’s share price next year.
