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Rolls-Royce (LSE: RR) shares not too long ago hit one other all-time excessive, hovering above 1,100p (£11). This simply makes Rolls the best-performing FTSE 100 inventory over two (+427%), three (+1,210%), and 5 years (+1,152%).
As somebody who first invested at a a lot cheaper price in 2023, I’m clearly over the moon. However this now begs the query, ought to I crystallise positive aspects and transfer onto pastures new? Right here’s how I’m fascinated about issues.
Development engine
When assessing my progress shares, I first ask whether or not the engine’s nonetheless purring. Whether it is, the enterprise would ideally be firing on all cylinders, scaling quick, and gaining momentum. If it’s spluttering, nicely, I would contemplate promoting up.
Let me give a few easy examples to indicate what I imply.
In its Q1 2026 earnings, Nvidia reported year-on-year income progress of 69% ($44.1bn), and expects about one other 50% enhance in Q2 ($45bn). CEO Jensen Huang commented: “International locations world wide are recognising AI as important infrastructure — similar to electrical energy and the web — and Nvidia stands on the centre of this profound transformation.”
In the meantime, Shopify simply reported Q2 income progress of 31% ($2.7bn). CFO Jeff Hoffmeister mentioned: “Retailers of each dimension — from first-time founders to international manufacturers — are selecting Shopify to develop their companies and their success is what’s driving our success.”
As we are able to see, these progress engines are purring away properly. Each shares are booming.
However what about Rolls-Royce, the maker of high-quality engines? Effectively, income grew by round 10.7% within the first half (£9.1bn), whereas underlying working revenue surged 50% to £1.7bn.
Full-year working revenue steering was raised to £3.1bn-£3.2bn, and the mid-term goal of £3.6bn-£3.9bn was reaffirmed. However CEO Tufan Erginbilgic confused that this goal is “a milestone, not a vacation spot, with substantial progress prospects past the mid-term.”
Stepping again, I agree that Rolls-Royce has enticing long-term progress alternatives throughout its enterprise. The core Civil Aerospace ought to profit from rising international journey, whereas Defence and Energy Methods are prone to thrive as European navy spending is ramped up over the following decade.
Moreover, as Europe invests to hit Internet Zero targets, the small modular reactor (SMR) alternative seems substantial. Giant synthetic intelligence (AI) information centres could at some point want their very own SMRs. Rolls-Royce says this nascent enterprise shall be worthwhile and free money stream constructive by 2030.
Contemplating dangers
Given all this, I see no cause to promote my shares. Nonetheless, there might be potential dangers which may persuade me to.
For instance, Rolls-Royce has repeatedly warned about provide chain challenges. These may throw a spanner within the works shifting ahead, particularly when the impression of President Trump’s tariffs possible kick in later this yr.
Additionally, a ridiculously excessive valuation may drive me to take some chips off the desk. That’s as a result of Rolls may shortly grow to be a sufferer of its personal success if progress targets are missed, even modestly.
Based mostly on forecasts for 2026, the ahead price-to-earnings ratio right here’s round 36, falling to 32 by 2027. That’s fairly excessive for the FTSE 100 engine maker. A price-to-sales ratio of 4.7 additionally doesn’t precisely scream worth.
That mentioned, I don’t assume the inventory’s ridiculously overvalued. My view is that Rolls may nonetheless go increased from right here.
Weighing issues up then, I’m holding on to my shares.
