From near extinction to record levels, Rolls-Royce (LSE:RR) shares are having a truly epic comeback.

Less than four years ago FTSE100 the company’s shares were trading at just 39p. Today it changes hands to 470p. This represents a staggering raise of 1,103%!

That means a Rolls-Royce is at least a 10-bag grab for those intelligent enough to invest near the nadir of the pandemic.

Unfortunately, it wasn’t until later that I saw the huge payback potential. After a moment of hesitation, I finally hit the “Buy” button at 149p.

I’m eager to add to my holdings, but the share price rarely stops to catch its breath. Is now a good time to buy?

Another sanguine update

In May, the engine manufacturer provided a positive stock update ahead of its half-year results on August 1.

Chief Executive Officer Tufan Erginbilgiç said: “We drive growth by delivering contract improvements and better margins, unlocking efficiencies and creating value across the group. We started this year forceful…[which] provides greater confidence in our 2024 guidance“

In the four months ending April 30, large engine flight hours returned to 100% of pre-pandemic levels and could increase by another 10% for the full year. This is due to the continued recovery of international air traffic in Asia.

Meanwhile, the company’s fleet continues to expand, with a recent significant order for 60 Trent XWB engines from IndiGo. It was the first deal with India’s largest airline, which maintains a 60% share of the domestic passenger market despite grounding a fifth of its fleet due to engine failures from Pratt & Whitney, Rolls-Royce’s American rival.

India may become a very large growth market in the future.

It goes

The company’s defense business is also expanding as countries strengthen their militaries. Australia has confirmed spending on the AUKUS submarine program, which includes Rolls-Royce reactors. AUKUS is a tripartite defense pact in the Indo-Pacific region between Australia, the United Kingdom and the United States (hence the name).

The company also highlighted recent updates by three major rating agencies. It also reduced its gross debt position by repaying a €550 million bond with cash.

One of the ever-present dangers is main engine retirement, as was the case RTX-owner of Pratt & Whitney. In September, RTX said it expected the engine problem to cost as much as $7 billion. This includes compensation to customers for lost production capacity.

What about pricing?

The company’s shares are currently trading at 31 times futures earnings. It’s more than that BAE systems (20.4) and RTX (19.7).

On the other hand, Rolls-Royce is expected to grow rapidly. By 2027, it aims to achieve core operating profit of £2.5-2.8 billion, operating margin of 13-15% and free cash flow of £2.8-3.1 billion. He is well on his way to achieving this.

The company is forecast to post earnings per share of 23p in 2027. If this happens, the 2027 earnings multiple will be around 20 times.

So this stock may be overvalued in the brief term, but has decent value in the long term if these forecasts turn out to be correct.

For me, I remain bullish here. As global airlines expand their fleets and exploit more aircraft, Rolls-Royce should generate steady revenue streams for decades.

If the August semi-annual update is positive, I may buy more shares.