Forecast: here’s what I think a £1,000 investment in Rolls-Royce shares could be worth in 2028
So far this year, Rolls-Royce (LSE:RR) shares have continued their stunning post-pandemic rally. The stock is up 82% since the start of the year and isnât showing signs of slowing down.
Despite this, the stock trades at a price-to-earnings (P/E) ratio of 16 â well below other engine manufacturers. So is the stock still a bargain for investors at todayâs prices?
P/E multiples
Rolls-Royce shares trading at a P/E ratio of 16 is based on the company making 67p in earnings per share (EPS). And while this is accurate, thereâs a lot more to the story than this.
In its update for the first half of 2026, the firm disclosed £2.6bn in one-off boosts. These were the result of net financing gains and the deconsolidation of its small modular reactor business.
These account for a significant amount of the £5.8bn net income the company reported. Theyâre absolutely legitimate earnings, but theyâre also one-off in nature.
Thatâs something investors need to factor into their expectations about Rolls-Royceâs future profits. And the effect on that low P/E multiple is quite dramatic.
Adjusted earnings
Adjusting for one-off gains, Rolls-Royce has generated around 30p in EPS over the last 12 months. And on that basis, the stock is currently trading at a P/E ratio of around 35.
Thatâs obviously much higher, but itâs also worth noting that itâs a premium to shares in other engine manufacturers. Safran (27) and MTU (25) both trade at lower multiples.
Arguably, Rolls-Royce shares deserve a higher multiple. The firm has a number of advantages â including its small modular reactor division â that give it stronger growth prospects.
Nonetheless, a closer look at the companyâs income indicates that the stock isnât as cheap as it looks at first sight. But thatâs not to say earnings are set to stop growing any time soon.
Forecasts
Analysts are expecting Rolls-Royceâs EPS to be 29p this year, rising to 41p by 2028. At that level, a P/E multiple of 30 implies a share price of £12.30 â 15% above the current level.
Source: TradingView
The current dividend yield is just above 1%. And with some future growth, investors might well expect their total return to be closer to 20% over the next three years.
Thatâs enough to turn a £1,000 investment at todayâs prices into £1,200, but this is based on earnings three years into the future. This implies an average annual return of around 6.25%
This is roughly in line with the FTSE 100 average over the last 20 years. So while I donât think the stockâs outstanding performance means itâs in a bubble, I donât see it as an obvious opportunity.
End of an era?
Rolls-Royce has been the FTSE 100âs best-performing stock of the last five years. But itâs becoming increasingly difficult to see how the stock can keep going as it has been from the current level.
The stock could trade at a higher P/E multiple, but relying on this is risky. That means a lot depends on the firm outperforming expectations in terms of EPS growth.
Given the outstanding job CEO Tufan Erginbilgiç has done at the company, Iâm not ruling this out. But I think there are more promising opportunities elsewhere for the next few years.
The post Forecast: here’s what I think a £1,000 investment in Rolls-Royce shares could be worth in 2028 appeared first on The Motley Fool UK.
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Stephen Wright has no position in any of the shares mentioned. 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.
