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The rise in Rolls-Royce Holdings (LSE: RR.) shares since the crash of 2020 has made some big gains for investors.
But we won’t make make future money from past success. So what might the next few years have in store for the Rolls-Royce share price? Making predictions is a scary business. But it can be useful to examine analyst forecasts and think about what they might mean.
What the experts say
Forecasts show a brief fall in earnings per share (EPS) for Rolls-Royce in 2025, after the strong gains of the past few years. Is that holding the share price back? A look at the chart above suggests it isn’t. And a forward price-to-earnings (P/E) ratio of 34 for the year might look a bit high to some.
But let’s look further ahead. City analysts have EPS rises on the cards that would lower the P/E to around 25 by 2027. Is there any sign from the company that that’s likely to happen?
Bullish boss
In an AGM statement on 1 May, CEO Tufan Erginbilgiç said: “Our transformation of Rolls-Royce is progressing strongly and we continue to expand the earnings and cash potential of the business.” He also spoke of “guidance for 2025 of £2.7bn-£2.9bn of underlying operating profit and £2.7bn-£2.9bn of free cash flow“.
I think it’s fair to say that he hasn’t held back when it comes to enthusiasm for Rolls-Royce’s future. But while I’m being fair, I have to add that he’s been right so far. In fact, if anything, the company has over-delivered on his optimism.
Share price
Let’s assume the forecasts are right. If earnings grow as predicted, and if the P/E valuation is maintained at today’s level by 2027… the Rolls-Royce share price could reach 1,059p. That’s 33% ahead of the current price. And it could be enough to turn £10,000 into a shade short of £13,300. Saying that, the word ‘if’ bears a heavy burden here.
For the P/E to still be up at around 33 in another two years, I reckon the future outlook would need to be as strong as it appears today. That means similar upbeat growth expectations for 2028 and 2029. Is that likely? At this point we can do little more than guess. If forecasts slow, a rational valuation could be lower.
From what I’ve seen since 2020, I’m optimistic. But a lot could happen between now and then. In fact, even in that May statement, the CEO said that “recently announced global tariff increases have created a degree of uncertainty for the industry“. Hands up anyone who thinks President Trump won’t do anything else unpredictable in the next couple of years… No, I don’t see a lot of raised palms.
What does it mean?
We need extreme caution when trying to guess where a share price might go. Especially in the short term like this. But asking ‘What if?” can help as part of our overall approach.
The big price gains so far, coupled with increasing short-term uncertainty, could mean a weak spell for the Rolls-Royce share price. But I reckon growth investors who are optimistic about the future should still consider it.
This story originally appeared on Motley Fool
