It seems such a short time ago that Rolls-Royce Holdings (LSE: RR.) shares were well under a pound.
Right now, they’re hovering around the £2 level, at 210p at the time of writing. Did I miss the chance to buy when they were cheap? And, more importantly, should I buy now?
Look to the future
Well, first up, I clearly missed a chance to make a quick profit. If I’d bought Rolls-Royce shares a year ago, I’d have trebled my money now.
But I’m not going to beat myself up over that.
We’ll always miss chances. There are so many choices, and so many uncertainties out there. And few of us have enough cash to buy everything we want.
So we need to put aside past regrets and look to the future instead. The past, as they say, is not a good guide to the future anyway.
What to do now?
What counts now is the Rolls stock valuation, today.
Because that’s what it’s all about, with any stock — valuation. Never mind the share price chart, and forget any thoughts of timing the next big jump. Valuation is what counts.
On the valuation score, what do Rolls-Royce shares look like?
Broker forecasts do appear upbeat, and there’s a general ‘buy’ consensus out there. But most of their price targets… well, they’re around the current price, or not much more.
Valuation
Solid forecast earnings growth would drop the price-to-earnings (P/E) ratio to about 16.5 by 2025 — for 2023, it’s up around 30.
Is that a fair valuation? Well, I think it might be. But then, it’s a long way from being a no-brainer ‘buy me now’ valuation.
Still, billionaire investor Warren Buffett has stressed that, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price“.
And I do think that could apply to Rolls-Royce.
Cheaper shares
Taken in isolation, I might buy Rolls-Royce now, to hold for at least 10 years. And I think I’d probably do well enough with it.
But a stock purchase is never made in isolation.
At the moment, I see far more London Stock Exchange stocks that I rate as good value than I could possibly afford to buy. If I had the cash, I reckon I could fill the equivalent of 10 ISAs with UK shares, and still have to leave some desirable ones out.
And, dare I suggest there are even some wonderful companies at wonderful prices out there?
Will I buy?
So, to my bottom line, will I buy Rolls-Royce shares at a little over £2 today? The answer is no.
That’s not because I don’t think it’s a great company with a great future. I do think exactly that.
No, the reason I won’t buy right now is that I like the stock, but I think most of the potential is already in the share price. I hope I’ll be able to buy at a more attractive valuation in the future.
