There once was a share price called Rolls-Royce (LSE:RR.),
Whose performance made shareholders rejoice.
It didn’t stop rising,
Which to some was surprising,
But now it’s many investors’ top choice.
Despite a forward price-to-earnings (P/E) ratio of 29.
And a valuation multiple similar to fine wine.
People are still buying,
And continue defying,
The critics who say it’s going to decline.
It’s taken a while — and after a long period of reflection —
I regretted not adding the stock to my collection.
So a few weeks ago,
Using some of my dough,
It became the target of my affection.
As a proud owner of my shiny new shares,
I’m happy with the current state of affairs.
Because I’ve made a few pounds.
And I like how that sounds.
But it’s not enough to become one of those Rolls-Royce millionaires.
The group’s organised across three divisions,
Which its board of directors envisions
Will continue to expand,
Generating lots of cash in hand,
As a result of some sensible decisions.
But wise old investors look to the long term,
When evaluating whether to confirm
Taking a stake,
Or a slice of the cake,
In a 140-year-old firm.
It might take a while, I know
Before some of the benefits will show,
Of small modular reactors,
That could be one of the factors,
In helping the share price to grow.
Like any investment there could be issues
That make me want to reach for the tissues.
A recession could bite
And customers could take fright,
Giving the share price the blues.
Or if one of the company’s engines is found
To have developed a strange and concerning sound.
Like Cathay Pacific,
Which thought it horrific,
When one of its planes had to turn round.
Some like to buy shares for the dividends
And the reinstatement in 2024 should make amends.
But with a yield of 1%,
It’ll quickly be spent,
So income investors are unlikely to tell their friends.
But in my opinion Rolls-Royce is a quality engineer,
That produces year after year
Many clever things,
Mainly for machines with wings,
That continue to pioneer.
Analysts expect earnings per share of 25.6p within three years.
And if they’re right you’ll hear many cheers
Because an 86% rise,
Deserves a prize
As it’s far better than any of its peers.
It these ‘experts’ are right and this forecast is hit,
The earnings multiple falls quite a bit.
The shares then look cheap,
And could soon start to leap,
I’ll be sitting smugly on my gains, I admit!
With my time now drawing to a close,
I must end my prose.
But I hope I’ve done right
And in future won’t have to write
That Rolls-Royce was one of the worst stocks I chose.
(With apologies to the late Edward Lear and limerick writers everywhere)
The post Now above 540p, has the Rolls-Royce share price become a bit of a nonsense? appeared first on The Motley Fool UK.
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James Beard has positions in Rolls-Royce Plc. 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.
