Image source: Rolls-Royce Holdings plc
Rolls-Royce‘s (LSE:RR.) share price futures continued to enter 2026. At £12.55 per share, FTSE 100 the stock is now up 113% over the past 12 months.
If City’s predictions are correct, Rolls’ stock is about to hit even bigger highs. One analyst thinks they will reach £16.25 within the next 12 months. That represents a 29% premium from current rates.
Well, that’s much lower than the returns investors have enjoyed in recent years. But with dividends included, they still suggest a total return of 30%. That’s certainly not to be sniffed at in my opinion.
The question is, can the developer’s share price really beat these highs? Or is it all just pie in the sky?
Different opinions
It is important to mention that this prediction is just one of the 16 estimates for Rolls-Royce. And there is a big difference in the seller’s view.
One trader thinks the FTSE 100 share will collapse to 900p next year. That represents a 28% drop from current levels.
In particular, analysts are optimistic about Rolls shares, although they are tipping for a very tepid price increase. Instead of £16.25, the average target price among City shoppers is £13.04. That represents a 4% increase from today.
Given the company’s large valuation, I’m not surprised analysts see limited pricing power from this point. Today it trades at a forward price-to-earnings (P/E) ratio of 38.1 times.
To put that in perspective, it was about 15 in the last 10 years.
Now?
However, shares of Rolls-Royce have managed a small amount for the past two to three years. And this hasn’t stopped its share price from taking off. Bulls can also argue that the developer is fully deserving of a premium value assessment.
There is certainly a lot to like about the company. Its sustainability under CEO Tufan Erginbilgiç since 2023 has been impressive, driving cash flow and profits through the roof through contract pricing and sharp cost reductions. Looks like there’s a lot more to come.
This leaves Rolls in the best position to exploit its growing markets. The civil aviation market offers significant opportunities as passenger numbers grow worldwide. The growing tension of the country, and the growing need for clean technology, also shows well its diversification of Defense and Power Systems respectively.
What could go wrong?
However, it is also important to emphasize the risks Rolls-Royce faces. And given the company’s huge value, it’s possible that its shares could fall if its turnaround loses steam.
Another threat is supply chain issues that may impact project performance and delivery, not to mention increase costs. Its global footprint also leaves it vulnerable to adverse currency movements (a falling US dollar in particular is a major risk).
Then there are serious competitive threats in all its categories, and the possible decline of Civil Aerospace given the growing economic challenges. The latter is arguably the biggest risk facing the company today. And given that commercial aircraft make up 70% of Rolls’ operating profit, the potential impact could be significant.
I wouldn’t be surprised to see the price of Rolls-Royce go up again in the next year. However, I see a scenario where its shares may go down. I wouldn’t buy the company for my portfolio, but it might be worth considering for emerging investors.
