It can be easy for investors to get greedy. A FTSE 100 share moving up 35% in 12 months sounds excellent, given that the wider index has moved up by 17% over that period – just half the gain. But when the share in question is Rolls-Royce (LSE: RR), investors may be expecting more. After all, the Rolls-Royce share price has soared 1,255% over the past five years. Given that context, a 35% gain may seem less exciting than what has gone before it!

Still, to me, 35% annual growth represents outstanding performance.

Looking to the long term

It goes without saying that past performance is not necessarily a guide to what to expect in future.

Also, share prices rarely move in straight lines.

Still, imagine that the Rolls-Royce share price – currently around £14.82 — keeps moving up by 35% per year. Here is what that could mean in numbers.

Pretty interesting stuff, right?

The strong gains are a result of what is known as compounding. Basically, a bigger baseline means 35% growth has bigger impact each year.

Could this happen?

But, in the real world, might the Rolls-Royce share price be close to £300 a decade from now?

The company already has a £123bn market capitalisation, after all. That growth of 1,911% would mean that its market capitalisation becomes £2.5trn (though given the company’s ongoing programme of buying back and cancelling shares, it could be smaller).

No British listed company has ever been valued that high.

Some American ones are, though. Over the long run there is no reason why a British company could not command such a market capitalisation if its business performance was strong enough.

Rolls-Royce is growing strongly

At the half-year point, Rolls’ revenue was up 25% year on year on an underlying basis and 21% on a statutory basis.

Basic earnings per share grew 41% underlying but fell 73% statutory. Free cash flow grew 24% underlying.

Could those figures support 35% annualised share price growth?

When a company grows strongly, the share price can increase faster than revenues. Investors like what growth brings.

Economies of scale can mean that profit margins increase, as earnings grow faster than revenues. That is illustrated by Rolls’ 41% growth in basic earnings per share on 25% revenue growth.

With strong demand in defence, civil aviation and power systems, and a disciplined approach to achieving its financial goals, I think the company could possibly keep growing.

That could push the Rolls-Royce share price up – but I do not expect it to keep growing at an average of 35% per year over the long term.

It already looks expensive to me, at 50 times earnings. Any demand slowdown could send the share price downwards. I see a risk that civil aviation demand could fall due to weak consumer confidence and ongoing conflict in the Middle East.

At the current share price, I will be ignoring Rolls-Royce in favour of what I think are better value growth shares in today’s market.

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Christopher Ruane does not hold any positions in the companies mentioned.