Rolls-Royce shares have performed very well recently. And looking ahead, they could continue to do well as the company has significant momentum.
However, taking a long-term view, I think there are a lot of shares that will deliver bigger gains. With that in mind, here’s a look at two stocks I believe will outperform Rolls-Royce over the next five years.
This tech company’s more scalable
First up, we have Uber (NYSE: UBER), which is listed in the US. You’re probably familiar with this company already. If you’re not – it’s the largest rideshare business in the world.
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There are a few reasons I expect Uber to outperform Rolls-Royce over the long term. One is that it’s far more scalable than the aerospace company. This is a business that’s constantly launching into new markets and cities. For example, just last week it launched in Northampton.
Another is that its profits are forecast to grow at a faster rate. Next year, for example, Uber’s earnings per share are forecast to jump 144%. That compares to a forecast of +23% for Rolls-Royce. It’s worth pointing out here that, like Rolls-Royce, Uber’s been on a major efficiency drive recently.
Now, there’s no guarantee Uber shares will outperform Rolls-Royce shares, of course. Looking ahead, the company could face more competition from other rideshare companies (and perhaps even Tesla in the robo-taxi space).
I think this company has all the right ingredients to be a winning investment though. Trading on a P/E ratio of 34 using next year’s earnings forecast (versus 24 for Rolls-Royce), I’m very bullish on it.
This FTSE 250 company’s growing faster
Next, we have Alpha Group International (LSE: ALPH). It’s a fast-growing FTSE 250 company that offers solutions in relation to foreign exchange risk management and mass payments to businesses globally.
Like Uber, the business is very scalable. This is illustrated by its past revenue growth. Between 2018 and 2023, Alpha’s top line climbed from £23.5m to £110m. That represents growth of about 370%. Over the same period, Rolls-Royce’s revenues climbed from £15.7bn to £16.5bn – growth of just 5%.
Looking ahead, analysts expect Alpha to grow faster than the aerospace company. This year and next, revenue’s forecast to rise 17% and 16%. That compares to forecasts of 2% and 9% for Rolls-Royce. If these forecasts turn out to be accurate (and they may not), I’d expect Alpha shares to do well.
It’s worth noting that there’s some ‘key-person’ risk with this company. It’s led by founder and CEO Morgan Tillbrook, who has an excellent track record. But I’d say the same thing applies to Rolls-Royce. Ultimately, much of the company’s recent success has been down to the legendary Tufan Erginbilgiç.
Overall, there’s a lot to like about this stock, in my view. It’s trading on a P/E ratio of 28 using next year’s earnings forecast. That’s high, but not crazy, given the impressive level of growth.
