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In the past five years, Rolls-Royce (LSE: RR.) shares have surged by almost 1,000%. Rising from around 91p in July 2020 to flirting with the 1,000p level today, it’s been one of the most astonishing turnarounds in modern UK stock market history.
To put that into perspective, over the same period, the FTSE 100 has gained just 45%. The S&P 500 — even with its tech-fuelled bull run — has advanced 95%.
Looking across roughly 850 large-cap companies in the UK and US, Rolls-Royce has outperformed all but five. The leaders include some of the biggest growth stories of our time: Nvidia, up a staggering 1,632%, Super Micro Computer with gains of 1,573%, and Palantir, up 1,397%.
The fourth stock just ahead of Rolls-Royce is Howmet Aerospace, up 1,062%. Meanwhile, Vistra Corp is almost on par with Rolls, up 966%. Other tech giants like Broadcom and Axon trail well behind, and rival GE Aerospace doesn’t even make the top 10.
So how has a British icon that almost collapsed during the pandemic managed to join the ranks of America’s elite growth champions?
From Rolls to riches
The company’s roots stretch back to the late 1800s when Henry Rolls and Charles Royce teamed up to produce what became some of the world’s most luxurious cars. But in 1971, under cost pressures and a failing engine programme, Rolls-Royce entered voluntary liquidation. The car business was later split off and the core business returned to the London market in 1984, focusing purely on aircraft engines.
It hasn’t always been clear skies since. In 2017, the group reported a colossal pre-tax loss of £4.6bn, weighed down by penalties and a £671m fine for historic bribery and corruption charges. A sweeping restructuring followed in 2018, refocusing the business around three core segments: civil aerospace, defence, and power systems.
An incredible recovery
In 2020, the pandemic nearly tipped Rolls-Royce back over the edge. Global air travel ground to a halt, hammering the company’s lucrative engine servicing revenues. That forced another wave of cost-cutting and job losses.
But since January 2023, under the leadership of now-not-so-new CEO Tufan Erginbilgiç, the group has staged a jaw-dropping recovery. Erginbilgiç’s pushed through tough efficiency programmes, sharpened capital discipline and streamlined operations. This has helped lift operating margins and restore investor confidence.
The civil aerospace division has roared back to life on the reopening of long-haul travel, while defence continues to bring in steady profits. Meanwhile, the power systems arm — building everything from ship engines to microgrids — enjoys rising demand amid global infrastructure upgrades.
Still worth buying?
Rolls-Royce shares may look expensive after this incredible run. But compared to some US peers, the valuation remains surprisingly reasonable. The price-to-earnings (P/E) ratio is around 30 — admittedly above the FTSE average, but arguably fair for a firm growing earnings by over 30% year on year.
Of course, there are risks. The balance sheet still carries hefty debt, and the airline industry’s notoriously cyclical. Geopolitical tensions could disrupt both defence contracts and air travel — not to mention the threat of environmental catastrophes.
Still, few FTSE 100 companies can claim to have delivered near-1,000% returns in five years. For investors seeking a slice of cutting-edge engineering with global exposure, Rolls-Royce is still worth considering for long-term growth.
