To say the Rolls-Royce (LSE: RR) share price has performed well in 2023 would be an understatement. This year, its surged a magnificent 208%. In the last 12 months, its jumped by nearly 240%. As I write, the share price sits at 300p.
Despite that, it’s not all been plain sailing for the stock. In fact, the last decade has been incredibly volatile for shareholders of the iconic British manufacturer. Ten years ago, I would have had to fork out 426p for a share. Yet during the pandemic lows, I could have picked up a share for as little as 38p.
Since then, however, it has made an incredible recovery. If I’d invested during the pandemic, I’d be sitting on a 681% return.
That’s impressive. And it has me wondering if the stock will be able to take this fine form into 2024.
A bubble ready to burst?
While returns of this size are exciting, I’m also cautious. Rolls-Royce shares have performed exceptionally. But I’m wary I may just be buying into the hype. All good things must come to an end, after all. The stock may be in a bubble. My largest concern is that I’d buy some shares and the price comes tumbling down.
What doesn’t help this is the large volatility surrounding the aviation sector currently. Rolls generates around half of its revenue from its civil aerospace division. And we all saw the impact the pandemic had on it. The firm was nearing bankruptcy at one point. While I suspect the conflicts in Ukraine and the Middle East won’t have quite the same effect, they’re still a source of concern.
An impressive turnaround
That said, there’s a lot to like about the firm.
CEO Tufan Erginbilgic has ambitious targets for the business. Most recently, he announced his aim to quadruple profits to £2.5bn by 2027. As well as that, he also plans to streamline the firm by exiting multiple non-core businesses. This is expected to total between £1bn to £1.5bn in sales, which it plans to use to reduce its debt. This should help alleviate some pressure given 75% of its current debt is due to mature between 2025 and 2027.
Moves like that are what I like to see. And since taking over the reins in January, Erginbilgic has made solid progress in turning Rolls-Royce into the business it once was. He described the company as a “burning platform” at the beginning of his tenure. But through initiatives such as job cuts, he’s made strong progress. This year the business expects its full-year results to be “materially ahead” of 2022.
With this progress, there’s also talk of a dividend in the years ahead. Analysts are suggesting the company could pay up to 2.5p per share in 2024. That equates to a 0.8% yield as of its share price on 13 December.
What I’m doing
I’m torn on Rolls-Royce. For that reason, I’m holding off from buying for now.
The stock has a lot of strong points. And Erginbilgic seems to be the man to steer the company forward. But I’m worried that today’s share price has been fuelled by speculation. I’ll be waiting on the sidelines. If the share price continues to skyrocket, maybe it’ll become too difficult to ignore.
