I’m running out of superlatives to describe Rolls-Royce (LSE: RR) shares. The aircraft engine maker has smashed all-comers across the FTSE 100 over the past three years.
The shares soared 96% in 2025. But the really big winners are those who bought shares in the aircraft engine maker three years ago as they’ve skyrocketed 1,130% since then. That would have turned a £10,000 investment into £123,000. Words like rampant, red-hot and jaw-dropping scarcely cover it.
Investors who boarded early will be celebrating. Those who missed their flight will be kicking themselves. Both will be asking the same question as the new year dawns. Where does the share price go in 2026?
FTSE 100 growth star
Naturally, I don’t know. Nobody does. All investors are equal in one crucial respect. None of us has a crystal ball.
We’re constantly warned that past performance is no guide to the future, but it does tell me one thing. Rolls-Royce shares simply can’t keep climbing at this speed.
It’s now the UK’s sixth-largest company, with a market value of around £95bn. If it rose another 1,130% over the next three years it would be worth £1.2trn. That’s roughly a third of the entire UK annual economic output. Not going to happen.
Even if the shares ‘merely’ doubled, to £190bn, that would still be extraordinary. It would put Rolls-Royce within touching distance of HSBC Holdings at £202bn, and AstraZeneca, the UK’s biggest company, at £213bn.
The business does have plenty going for it. Aircraft engine manufacturing and maintenance revenues have surged with the post-pandemic recovery in flying. Its Power Systems division has been boosted by demand from AI data centres. Rising geopolitical tensions have lifted defence orders too.
Then there’s the long-term promise of small modular reactors, the so-called mini-nukes. Chief executive Tufan Erginbilgic believes they could eventually double the size of the company, if they succeed as planned.
That ‘if’ matters. These projects depend on government backing, disciplined execution, and the technology delivering as promised. There are also environmental and regulatory concerns as mini nukes are said to release more radioactive waste than conventional nuclear plants.
These shares are pricey
The most obvious challenge today is the valuation. Rolls-Royce trades on a price-to-earnings ratio of around 56, far above the FTSE 100 average of roughly 17. Expectations are sky-high.
Brokers remain upbeat, with consensus forecasts pointing to a share price of around 1,265p over the next year. If so, that’s an increase of roughly 10% from today, turning £10,000 into £11,000. Throw in the modest forward yield of 0.95%, and that increases to £11,095.
Of course, analysts don’t have crystal balls either. But in my view, that sums up where Rolls-Royce shares now stand. They’ve done brilliantly, but from here the pace surely has to slow. Anyone hoping to make up for what they missed is fooling themselves.
Future gains are likely to be steadier, while the risks look higher. Any disappointment when full-year 2025 results land on February 26 could be punished hard.
Personally, I wouldn’t consider buying at today’s sky-high price. I’m seriously thinking about taking some profits off the table, but not selling out completely. Then I’ll look to reallocate that money into the next big growth opportunity. I can see plenty more exciting growth stocks on the FTSE 100 today.
