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Rolls-Royce (LSE:RR) has been a great stock for investors in recent years. But looking ahead, I think other UK stocks could be better options for investors with long-term perspectives.
Beyond the FTSE 100 and the FTSE 250There are some companies with very strong growth prospects. And they're currently trading at what I consider attractive valuations right now.
Rolls-Royce
Rolls-Royce's share price has risen from 93p to £5.79 since the start of 2023. That's a 521% gain, enough to turn £10,000 into more than £62,250.
Much of this has been driven by factors that I hope will normalize. Recovering travel demand is one of them; While it increased after the pandemic, I think it is unlikely to continue growing at the same rate.
Another is multiple expansion. Since the beginning of 2023, the price/sales (P/S) multiple at which Rolls-Royce shares trade has gone from 0.63 to 2.74, but I don't expect it to continue rising indefinitely.
Rolls-Royce P/S Ratio 2021-2025
Created in TradingView
It's hard to see any of these forces continuing to drive Rolls-Royce shares up at the rate they have. That's not to say it's not a good investment, but it might be time to look elsewhere.
Macfarlane
Macfarlane (LSE:MACF) is a stock I have been buying recently. It designs and manufactures protective packaging for a variety of different industries.
The risk of the business is that it operates in an industry with larger competitors. But the company has close relationships with its customers and offers customized products that are not easy to alter.
The stock is trading at an unusually low price-to-earnings (P/E) multiple, but I anticipate growth down the road. The recent acquisitions of Polyformes and Pitreavie should boost earnings this year.
This makes Macfarlane a growth company with shares trading at an attractive price. I think investors should consider the stock as a possible better option in the coming years.
Intelligent
Actions in the money transfer service. Intelligent (LSE:WISE) are only slightly above where they were when the company went public in 2021. But I think it is a fantastic business with plenty of room for growth in the future.
The stock is trading at a price-to-earnings (P/E) multiple of 20, which doesn't seem too bad. But investors should keep in mind that about 75% of your income comes from interest on the cash you keep in your accounts.
This is important because it makes the prospect of lower interest rates a risk that shareholders should consider. It is unlikely that Wise will be able to generate the same return if rates fall.
Ultimately, though, Wise's core product is cheaper and faster than its rivals. And with a huge market to expand into, I think the next five years could be very bright for the company and the stock.
The next Rolls Royce
Rolls-Royce is a quality company and I'm not saying it's a bad stock to own. But it's hard to see how the things that have caused the share price to rise in recent years will continue from now on.
With this in mind, I'm looking at other UK stocks at the moment. And I think both Macfarlane and Wise have plenty of room to grow beyond their current valuations.
