One of the best-performing share of the entire FTSE 100 index final 12 months was aeronautical engineer Rolls-Royce (LSE: RR). Quick-forward to 2025 and has that massive development within the worth of Rolls-Royce shares gone into reverse?

As if.

Actually, the Rolls-Royce share price has soared  Up to now this 12 months, it’s up 93%. In comparison with 5% for the FTSE 100 as a complete, that’s excellent efficiency – once more.

What’s driving the share price acquire

To unpick the explanations behind this hovering price, I believe it’s helpful to think about a couple of various factors.

One is buyer demand. After a really tough time resulting from government-imposed journey restrictions and weak shopper demand in the course of the pandemic years, airways have been struggling to satisfy hovering demand, which means they’ve been servicing planes and ordering new ones.

Making plane engines is a tough and dear enterprise, so there are excessive limitations to entry. That provides the few dominant gamers, similar to Rolls-Royce, pricing energy.

One other issue has been efficiency past the core civil aviation division. European governments have elevated navy budgets, serving to Rolls’ defence division. In the meantime its nuclear energy technology experience is coming more and more into demand.

However there have been inside components at play too. For the reason that begin of final 12 months, new administration has set very aggressive development targets. Up to now, enterprise efficiency has been sturdy. I believe that, if Rolls-Royce continues to look on monitor to satisfy and even beat these targets, its share price might transfer up additional even from right here.

The present price-to-earnings (P/E) ratio of 21 could look excessive at present (for my tastes, not less than). Nevertheless, if earnings develop strongly — as the corporate’s technique suggests they may — the potential P/E ratio seems to be to me as if it could truly nonetheless be doubtlessly low-cost from a long-term investor’s perspective.

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Potential for additional good points – however no ensures

The factor that places me off investing in Rolls-Royce – and I’ve no plans for the time being to purchase the shares – is what else may occur.

For instance, what if the formidable development plan fails?

Rolls has a historical past stretching again many years of blended efficiency. Take a look at its roller-coaster earnings per share, for instance.

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Its enterprise entails giant mounted prices and tasks with timelines that may shift dramatically resulting from exterior components like airframe producers pushing again launch dates.

I believe the present price of Rolls-Royce shares displays investor hopes that the corporate will ship on its plans. So if that doesn’t occur, I anticipate the share price might fall.

One other important however exterior issue that, once more, Rolls has struggled with for many years is civil aviation demand shocks exterior its management. The pandemic was simply the newest in an extended line of such shocks, from the 2001 US terrorist assaults to volcanic mud clouds grounding European aviation.

I see a danger of some such occasion throttling demand once more at some unknown future level.

The present Rolls-Royce share price doesn’t provide me sufficient margin of security to compensate for such dangers, so far as I’m involved.