Rolls-Royce (LSE:RR) shares are up an impressive 37% over the past year, reaching modern record highs in early July. However, the main goal now is to look to the future. Is an investor who is going to invest PLN 1,000? pounds, it has a greater chance that its value will augment to PLN 1.5 thousand in the coming year. pounds, will it drop to 500 pounds?

Case for further evaluation

Let’s start with the arguments for continuing the rally. The company continues to benefit from several essential factors that show no sign of waning. For example, the recovery in long-haul air travel has increased flight hours, which is crucial because the company makes most of its money by servicing aircraft engines rather than selling them outright.

As airlines continue to expand international routes, the high-margin aftermarket business should continue to generate mighty cash flow. This should translate into higher profits, which could push share prices higher.

Moreover, CEO Tufan Erginbilgiç transformed the company much faster than many investors expected. I’m talking about everything from cost savings to improving operating margins.

Needless to say, it’s all over. Management may provide another round of guidance refinements. The company’s shares are certainly not particularly undervalued, but investors may once again come to the conclusion that analysts underestimate the company’s earnings potential.

The final thought on this matter is addressed to the defense. With defense spending rising across Europe and growing interest in Rolls-Royce’s miniature modular reactor ambitions, there are many catalysts that could justify another 50% augment.

Some concerns

In fact, it’s probably stronger today than it has been in years. The problem is that the share price already reflects much of that optimism.

Rolls-Royce is trading at a much higher valuation than at most historical moments. The price-to-earnings ratio is currently 47.09, which is twice as high FTSE100 average. I don’t think it would take much to trigger a decline, whether it’s a modest earnings shortfall or an update showing slower growth in engine flight hours.

External risks also need to be taken into account. A global economic slowdown could reduce demand for international travel, and modern supply chain disruptions could delay aircraft deliveries and engine maintenance schedules. It’s something we saw not too long ago, so it’s not a strange risk to bring it up.

The most essential thing

Even with the high risk, I don’t see the stock dropping 50% in the coming year. I think there are many investors (myself included) who would like to buy any dip before the share price drops much lower. Although I think a 50% profit is also a bit ambitious, in my opinion an investment of 1k. pounds in the coming year will be worth more than the initial amount and should therefore be considered by investors.

Is it worth investing £5,000 in Rolls-Royce Plc now?

If investing expert Mark Rogers and his team have stock advice, it can pay to listen. After all, Twelfth Magpie’s flagship Share Advisor newsletter, which it has run for almost a decade, provides thousands of paying members with the best share recommendations from across the UK and US markets.

Mark believes there are 6 standout stocks that investors should consider buying right now. Want to see if Rolls-Royce Plc is on the list?

Jon Smith does not hold any position in the companies mentioned.