Is It Too Late To Consider Rolls-Royce After Its 1192% Three Year Surge?

• If you are wondering whether Rolls-Royce Holdings is still worth buying after its massive run up, or if the real value has already been priced in, you are not alone.
• The stock has climbed 6.7% over the last week, 12.7% over the past month, and an eye catching 105.9% in the last year, while the 3 year gain sits at an extraordinary 1192.2%.
• These large moves have come alongside a major turnaround story, including aggressive cost cutting, a sharper focus on core civil aerospace and defense businesses, and renewed investor confidence in long term demand for wide body aircraft and defense programs. At the same time, broader optimism around UK industrials and improving balance sheet perceptions have helped re rate the shares.
• On our framework, Rolls-Royce scores a 3/6 valuation check result, suggesting the market may still be underestimating parts of the story. Next we will break down what different valuation models say about the stock and discuss why there might be an even better way to think about value by the end of this article.

Rolls-Royce Holdings delivered 105.9% returns over the last year. See how this stacks up to the rest of the Aerospace & Defense industry.

Approach 1: Rolls-Royce Holdings Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a company is worth today by projecting the cash it can generate in the future and discounting those cash flows back to the present.

For Rolls-Royce Holdings, the latest twelve month free cash flow is about £3.27 billion. Analysts expect free cash flow to keep rising, with projections reaching roughly £4.48 billion by 2029, and Simply Wall St extrapolates this further to around £5.33 billion by 2035 using moderate growth assumptions.

When these projected cash flows are discounted back to today under a 2 Stage Free Cash Flow to Equity model, the estimated intrinsic value comes out at about £9.95 per share. Based on this DCF, Rolls-Royce is judged to be around 17.6% overvalued at its current share price, which suggests that a lot of the turnaround story and growth optimism is already reflected in the market value.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Rolls-Royce Holdings may be overvalued by 17.6%. Discover 913 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Rolls-Royce Holdings.

Approach 2: Rolls-Royce Holdings Price vs Earnings

For profitable companies like Rolls-Royce, the price to earnings (PE) ratio is a useful way to gauge value because it links what investors pay today to the profits the business is generating right now. In general, faster growth and lower perceived risk justify a higher PE multiple, while slower or more uncertain growth tends to pull that multiple down.

Rolls-Royce currently trades on about 16.9x earnings, which is below both the Aerospace and Defense industry average of roughly 47.5x and the peer group average of around 23.6x. Simply Wall St also calculates a proprietary Fair Ratio of 19.7x for Rolls-Royce, which represents the PE you might expect given its earnings growth outlook, margins, industry positioning, market cap and risk profile. This tailored benchmark is more informative than a simple peer or industry comparison because it adjusts for the company’s specific fundamentals rather than assuming that all aerospace and defense names deserve the same multiple.

Comparing the current 16.9x PE to the Fair Ratio of 19.7x suggests the shares still trade at a discount to where they arguably should be.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1464 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Rolls-Royce Holdings Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, an easy tool on Simply Wall St’s Community page that lets you attach your story about a company to the numbers. You can link your view of its future revenue, earnings and margins to a financial forecast, a fair value estimate, and a clear buy or sell signal based on the gap between Fair Value and the current Price. This then updates dynamically as new information like earnings or news arrives, so you can quickly see whether your thesis still holds. For example, some Rolls-Royce investors on the platform are building a cautious Narrative closer to the most bearish analyst assumptions and a fair value nearer £2.40, while others are far more optimistic, leaning toward the most bullish view with a fair value around £14.40. Narratives helps both groups turn those differing perspectives into concrete, trackable forecasts instead of vague opinions.

Do you think there's more to the story for Rolls-Royce Holdings? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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