Up another 35% in 2025 – can the Rolls-Royce share price keep climbing forever?

The Rolls-Royce (LSE: RR) share price just won’t stop. The FTSE 100 aerospace stock has rocketed 772% in just three years. Over the past year, it’s soared 102%.

Many investors assumed it would run out of puff. Some held back from buying. Others took profits too soon. Either way, they’ll be kicking themselves, as Rolls-Royce has risen another 35% so far in 2025.

Of course, my headline is rhetorical – no share price climbs forever. But once momentum sets in, a stock can soar for much longer than seems feasible. The big question is: does Rolls-Royce still have fuel in the tank, or is a correction on the way?

Number one FTSE 100 flyer

2025 has brought plenty of good news. In January, Rolls-Royce landed the biggest Ministry of Defence contract in its history, a £9bn deal for nuclear submarine engines.

February results showed 2024 operating profits jumped 49% to £2.9bn, while the group hiked mid-term targets, reinstated its dividend, and announced a £1bn share buyback for good measure.

Civil aviation remains a big profit driver, with Rolls-Royce engines in high demand as long-haul air travel continues to recover post-pandemic. Now defence is getting in on the act. The shares spiked again earlier this month, as European nations ramp up military spending to deter Vladimir Putin.

Rolls-Royce’s move into small modular nuclear reactors (SMRs) could further drive growth. These so-called ‘mini nukes’ are still in development, but if they take off, Rolls-Royce has a big opportunity.

Despite all that optimism, there are plenty of risks. With a price-to-earnings ratio of 40, it trades at a massive premium compared to the FTSE 100 average of 15. That’s justified if earnings keep climbing, but if growth stumbles at any point, the share price could take a big hit.

There’s also the risk that European nations could cool on buying US defence equipment due to Trump’s perceived unreliability as an ally. While that could benefit Rolls-Royce in Europe, it could also hurt its US defence trade if America retaliates.

Growth, dividends, and a buyback

And what about Trump’s trade war? If tariffs increase, Rolls-Royce’s engines and power systems could become more expensive for American buyers, denting sales.

If the US falls into recession, long-haul air travel may slow. That’s a worry because Rolls-Royce’s engine maintenance contracts are based on miles flown.

If those mini-nukes fail to live up to expectations or get a thumbs down from governments, disappointed investors could start bailing out.

The 16 analysts covering Rolls-Royce have produced a median one-year target of 780p. If correct, that suggests a small drop of around 2% from today.

Forecasts are slippery things, but it’s easy to see the stock slowing from here. Then again, I’ve been saying that for the last 18 months.

I eventually stopped worrying and joined in the fun, buying Rolls-Royce shares on 6 August for 455p during a brief summer dip. At today’s price of 795p, I’m up around 75%. But at some point, someone will get burned. I’ve got a nice safety net now. New buyers won’t have that.

Rolls-Royce is now a £66bn company. It’s a lot bigger than it was, but could be bigger still. I think it still has bags of potential and long-sighted investors should still consider buying it, especially on a dip.

The post Up another 35% in 2025 – can the Rolls-Royce share price keep climbing forever? appeared first on The Motley Fool UK.

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Harvey Jones has positions in Rolls-Royce Plc. The Motley Fool UK has recommended Rolls-Royce Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.