Rolls-Royce (LSE:RR) could have made me a small fortune after investing at 149p per share in May 2023. Alas, I didn’t pile in, keeping it as a smallish starter position.
But I did add on dips in August 2024 (at 477p) and January 2025 (at 622p). With the share price now sitting at 1,481p, I’ve done very well, even if I’m not about to retire to The Bahamas.
However, the Rolls-Royce share price has dipped 6% from August’s high. The question I’m asking now is, should I bank some profits and double down on SpaceX (NASDAQ:SPCX)?
Overlapping barriers to entry
I ask this because I recently initiated a position in the rocket/satellite/AI giant. Another starter one. So if this one skyrockets too, I’ll be no closer to a Caribbean island.
Now, while I’m a buy-and-hold investor, I’m certainly not averse to selling or trimming positions. This year, I have banked some profits from winners Axon Enterprise, Cloudflare, CrowdStrike, and Shopify. All on valuation grounds.
However, looking at Rolls-Royce, I don’t think the valuation’s massively overstretched. Based on forecasts for 2027, the stock’s trading at 30 times forward-looking earnings. That’s lower than US rival GE Aerospace (34.7).
However, in my opinion, these companies deserve to command a market premium. They hold an effective duopoly in the lucrative long-haul (widebody) engine market.
Moreover, there are multiple, overlapping barriers to entry in this industry. These include:
- Intellectual property.
- Regulatory barriers (safety).
- High customer switching costs.
- Ultra-long-term contracts.
Which brings me onto SpaceX…
Warren Buffett once famously said: “If you gave me $100bn and said take away the soft-drink leadership of Coca-Cola in the world, I’d give it back to you and say it can’t be done.”
I think the same thing’s true of SpaceX, if not more so. To even start, you’d need vast manufacturing facilities, launch and ground infrastructure, and to develop a reusable rocket (rocket science is hard, I’m told).
Also, a world-class engineering team willing to join a start-up, untold regulatory hurdles, and multiple test launches (and fiery failures). Oh, and thousands of cutting-edge satellites ready to deploy to take on Starlink.
After 10 years (possibly more), you might finally be ready. But guess what? By that point, SpaceX’s fully reusable mega-rocket Starship will probably be taking upwards of 95% of the entire world’s payload mass into orbit annually.
Meanwhile, Starlink could have 30,000+ satellites operating and 200m+ subscribers. Who knows? There might even be thousands of Starmind AI satellites in orbit by then too…
Good luck competing with all that!
My move
Anyway, back to my original question. Will I sell Rolls-Royce to buy more SpaceX shares? No. I’m going to keep holding because I think this FTSE 100 stock has further to run.
In civil aerospace, 75% of the cash value from renegotiated/higher long-term service agreements will be realised after 2028, while defence, data centre power, and nuclear provide additional powerful tailwinds.
A premium valuation does add risk, because if growth disappoints, Rolls-Royce stock could bomb. SpaceX faces similar risks, trading at 19.5 times 2027’s forecast sales, and 37 times 2028’s forecast earnings.
I’m going to buy more SpaceX shares on dips. Investors could consider doing the same. But if both stocks appear too dicey, The Twelfth Magpie has another growth stock idea waiting…
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Ben McPoland owns shares in Axon Enterprise, Cloudflare, CrowdStrike, Rolls-Royce, Shopify and SpaceX.
This story originally appeared on Motley Fool
