The Rolls-Royce (LSE: RR.) share price has been on hearth these days. Shares within the aerospace and defence firm have climbed from £0.93 per share at first of 2023 to £6.07 as I write on 31 January. That represents a achieve of over 550% within the house of simply over two years.

Traders have been clambering to purchase in and the corporate’s market cap has swelled to over £50bn within the course of. Having practically doubled in worth all through calendar 12 months 2024, can the Rolls-Royce share price do it once more?

Surging valuation

CEO Tufan Erginbilgiç has been busy making modifications. He has launched into a mission to slash prices, increase effectivity, and improve profitability since taking on in January 2023.

In October final 12 months, the corporate introduced 2,500 job cuts in pursuit of those targets. The corporate’s half-year working margin rose by 4.4% to 14%, with the largest achieve in its civil aerospace unit, which delivered an working revenue margin of 18%.

Traders seem like the beneficiaries, with the corporate asserting a dividend for the primary time since 2020. Administration upgraded steerage for full-year underlying working revenue of between £2.1bn and £2.3bn in 2024, probably some £300m above its personal February predictions.

Up, up, and away?

So, it’s been a robust couple of years for the Rolls-Royce share price. I feel there are a number of key elements that would propel the corporate’s market cap additional in 2025.

If the restoration in journey continues, that will be excellent news for the engine maker and its income potential. After all, greater revenues is only one piece of the puzzle.

Administration might want to hold trimming the fats to maintain prices beneath management and ship extra profitability. Additional revenue upgrades, or will increase to its forecast dividends, might additionally increase the share price.

By way of medium-term progress, I feel the corporate has some thrilling initiatives within the wings. Certainly one of them is its next-gen UltraFan engine with its new structure and light-weight design combining with the world’s strongest aerospace gearbox to create a possible sport changer.

On the forefront of technological change, business offers for this and different applied sciences like nuclear power might symbolize profitable future progress avenues.

Key dangers to progress

After all, no funding is with out danger. Administration has made no secret of the provision chain challenges it’s dealing with in the intervening time. Additional or worsening disruption might influence on profitability and be a nasty shock.

Then there’s the macroeconomic surroundings. International geopolitics is delicately poised and financial uncertainty is rife, with considerations round inflation and rates of interest. This implies there may very well be an sudden decline in demand, which traders would certainly view unfavourably.

My verdict

Rolls-Royce has been an enormous winner, nevertheless it’s now not a budget turnaround play it was a few years in the past. Traders must resolve whether or not the corporate can hold up its spectacular momentum.

If it retains bettering profitability and pushing into new markets, the share price might hold climbing. But when challenges mount up and the Midas contact escapes Erginbilgiç, 2025 may very well be a bumpier experience.

I’m not at present invested within the inventory. I don’t have the spare funds to take a position on the minute, however I feel I’ll be placing any spare money to work in different defensive sectors like prescribed drugs earlier than I soar on the Rolls-Royce prepare.