Rolls-Royce (LSE: RR) shares are at it again. Last Thursday they hit a new yearly high of 486p. They’re now up by 200% in the past year, far outperforming any other stock on the FTSE 100.
And that’s only half the 400% growth since new CEO Tufan Erginbilgiç took office at the start of 2023. In that short 18 months, shareholders have turned a £1,000 investment into £5,000!
But like this year’s other major success story, Nvidia, the all-important question is — will it keep going?
Reclaiming losses
Much of the recent price growth has been recovery, reclaiming losses made during the pandemic. The price is only now getting close to pre-Covid levels. This may be great for investors who bought the dip but others are only just being made whole. Who knows where the price would be now if it weren’t for the ravages of the pandemic? Major US broker Citi thinks it should be higher, recently raising its price target for the stock to 555p.
With that in mind, I don’t think it’s entirely unrealistic to believe the price could climb further.
Unlike Nvidia, it hasn’t gone parabolic to a price point way above any previous highs. Furthermore, the price is being driven by more than just AI hype. The popularity of Erginbilgiç and his aggressive turnaround plan is certainly a big factor. This, combined with rising air travel and increased defence spending, goes a long way to justify the growth.
But the higher it climbs, the harder it gets.
Market frenzy
The massive growth means the sentiment around Rolls is now a bit frenetic. Most shareholders have a lot to lose so they’re eyeing the stock with a microscope. The company’s 2024 first-half results are set to be announced on 1 August and will undoubtedly command much attention. There’s a good consensus among analysts that earnings could decline, doubling the current price-to-earnings (P/E) ratio to 32. That would be well above the industry average of 25.
Even the smallest slip-up or slight earnings miss could send a wave of panic through the markets, prompting a flash sale. If I weren’t already a shareholder I would wait until after the results before considering the stock. It may still make some gains between then and now but if results are bad, they could all disappear quickly.
Other options
Overall, I’m glad I got into Rolls-Royce when I did. Even a slight decline from here leaves me in a good position. But if I were looking for some serious growth, I wouldn’t buy the shares at this level. Especially as there are many other options out there.
When it comes to the defence industry, a smaller player like QinetiQ looks more appealing to me. With earnings expected to increase, its forward P/E ratio is only 17. And using a discounted cash flow model, analysts estimate the price to be undervalued by 42%. Another alternative is Chemring Group. Its trailing P/E ratio of 33 is expected to fall to 19 — indicating strong earnings growth expectations.
The post Up 200% in a year! Can Rolls-Royce shares rocket any higher? appeared first on The Motley Fool UK.
Should you buy Rolls-Royce now?
Don’t make any big decisions yet.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.
And he believes they could bring spectacular returns over the next decade.
Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows…
When such enormous changes hit a big industry, informed investors can potentially get rich.
So, with his new report, Mark’s aiming to put more investors in this enviable position.
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
More reading
The Rolls-Royce share price is discounted by 13.4%, analysts say
If I’d bought Rolls-Royce shares the day Tufan Erginbilgiç joined here’s what I’d have now
Approaching £5, is there still growth ahead for the Rolls-Royce share price?
3 UK stocks I reckon could benefit from the upcoming general election
The Rolls-Royce share price is booming — investing £1k in 2022 would be worth £5.2k today
Citigroup is an advertising partner of The Ascent, a Motley Fool company. Mark Hartley has positions in Nvidia, QinetiQ Group Plc, and Rolls-Royce Plc. The Motley Fool UK has recommended Nvidia, QinetiQ Group Plc, and Rolls-Royce Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.