A year is a short time on the stock market, as any look at the Rolls-Royce Holdings (LSE: RR.) share price shows.
The company has been a real star of the recovery since the Covid pandemic. And in the past 12 months, the price has climbed by 170%.
FTSE 100 growth star
That’s enough to turn £10,000 into £27,000. Growth stocks like that don’t come along too often. And it rarely happens with a FTSE 100 stock.
These blue-chip firms are supposed to be mature and dull, aren’t they? They’ve mostly settled down to modest growth, and steady dividends year after year.
Well, obviously, a crisis like the 2020 stock market crash can turn that upside down. All bets are off, and we can find big winners and losers just about anywhere.
Key lesson
I take a lesson from what’s happened to Rolls-Royce. Part of it is that we should never panic just because a stock falls.
Whatever’s going on, selling just because that’s what everyone else is doing has to be a poor move. And the same goes for buying just because everyone else is piling in.
No, even in crisis times, we need to keep cool heads and stick with a careful look at a stock’s fundamentals.
That means I try to buy or sell based only on how I see a stock’s long-term prospects.
Hard to do
Now, that’s easy to say. But I do find it hard to keep my mind clear of the bust and boom of the past few years.
Still, I try to do one thing, and ask myself one question. What if Covid had never happened, if the Rolls-Royce share price didn’t crash, and didn’t need to climb back the way it has.
What if it just went in a straight line from February 2020 to now? And if broker forecasts were still exactly as they are today.
Valuation
We’d be looking at a 29% share price rise over five years, which is still fair.
But going back over 10-years, there’s a gain of only 7%. The FTSE 100 managed 17.5% in that time, which itself is pretty poor.
That soaring 12-month winner doesn’t look so great now. It looks more like a 10-year loser.
If I’d put that £10,000 in Rolls-Royce shares a decade ago, it would be worth just £10,700 today. Well, plus dividends. But they were weak even before Covid brought them to a halt.
What now?
What might £10,000 in Rolls-Royce turn into in the next 10 years? We can only look forward. And forecasts show strong earnings growth for the next three years.
The forecast price-to-earnings (P/E) ratio for 2024 is up at 28, more than twice the FTSE 100 right now. It could drop below 20 by 2026, though. And net debt is down to only £2bn now.
What about the next 12 months for the Rolls-Royce share price? It might be good. But I don’t expect another 170%.
The post The Rolls-Royce share price rise could have made me this much in just a year appeared first on The Motley Fool UK.
Like buying £1 for 51p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
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More reading
I think they can: 2 FTSE 100 shares that can keep chugging higher
Here’s what £10,000 would have made me from Rolls-Royce’s recent share price bonanza
At 388p, is the Rolls-Royce share price at the level of a meme stock?
What the UK budget means for the Rolls-Royce share price
When will the Rolls-Royce share price slow down?
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.
