The Rolls-Royce-Royce share price has been the top riser in the FTSE 100 so far in 2023, rocketing over 115% year-to-date. Yet the British engineering icon still appears undervalued despite its blistering performance this year.

At 204p, Rolls-Royce is by far the biggest Footsie gainer as its shares rebound strongly from the battering inflicted by the pandemic. Even amid recent market turbulence, the stock has remained resilient thanks to improving industry conditions and its own turnaround efforts.

What’s remarkable is Rolls-Royce still seems cheap despite the share recovery. City analysts forecast annual earnings will surge nearly 300% in 2023, giving a price-to-earnings-growth ratio of just 0.1. Ratios below 1 signal undervaluation and estimates show Rolls-Royce trading on multiples below 1 through 2025.

The company’s fortunes have transformed since Covid-19 grounded much global air travel, hammering its servicing revenues. Net debt ballooned to £5.2 billion by 2021 as bankruptcy loomed.

But the enduring travel rebound has driven profits higher again, aided by major internal streamlining. New CEO Tufan Erginbilgiç has impressed with cost cuts and strategic initiatives to improve performance.

Investor appetite reflects confidence Rolls-Royce can capitalise on long-term industry tailwinds despite near-term risks of an economic slowdown. Airframe numbers are forecast to grow rapidly, lifting maintenance demand. Defence spending is also rising while sustainable aviation fuel presents opportunities.

However, Erginbilgiç himself said in December that Rolls-Royce remained a “burning platform” underperforming rivals. And at £2.8 billion, net debt remains high with repayments due soon. Fierce competition, regulations and development costs also persist as threats.

The recent stock resurgence shows markets backing Rolls-Royce’s comeback. But more progress is needed to justify positive sentiment as challenges remain. The long-term investment case still needs reinforcing for some.

Over the past 12 months, Rolls-Royce’s share price (LSE: RR) has increased by 158.57%.