If I’d have bought Rolls-Royce (LSE: RR) shares at the beginning of the year, safe to say I’d be ecstatic. During that time, it’s up a whopping 200%. With it up 233% in the last 12 months, it seems Rolls-Royce won’t stop rising.
But is that really the case? Granted, the company has had a terrific spell. But will this continue in 2024 and beyond? Because if so, I’ll be rushing to buy some shares.
Share price history
If I’d invested £5,000 into the stock at the beginning of 2023, today I’d be sitting on £15,000. That’s not bad at all.
However, it’s not been a smooth journey for Rolls shareholders in the past. When I buy a stock, I plan to hold it for a minimum of 10 years. So, let’s start there. A decade ago, a share in the British manufacturer would have set me back 436p. Yet during the pandemic lows of 2020, I could have snapped up a share for a little under 40p.
Since then, it’s staged an impressive recovery. But will it continue to rise?
Where next?
Well, I can certainly see why investors think it might. Since taking over back in January, CEO Tufan Erginbilgiç has made great strides in returning the business to its former glory. This year, the business expects full-year results to be “materially ahead” of 2022. Through initiatives such as job cuts, Erginbilgiç has made solid progress in streamlining Rolls.
With that, he has some ambitious targets for the firm in the years ahead. Recently he announced his target to quadruple profits to £2.5bn by 2027. He also plans to exit non-core businesses to raise over £1bn in sales. This should help the firm repay some of its £3bn debt.
Bursting bubbles
But will this result in its share price rising?
Well, I’m most conscious about buying into the hype. A 200% return is exciting, but is it just investors getting ahead of themselves? I don’t want to buy the stock today only for the value of my investment to be decimated in 2024. It’s often said in the short term investors act a lot on sentiment. However, in the long term, stocks align with company performance and fundamentals.
What doesn’t help is the volatility seen in the aviation industry. While the business is forecast to benefit from a rise in demand as the global middle class grows, the current conflicts in Ukraine and the Middle East are stark reminders of the potential threats. Any future geopolitical tensions could further hamper the industry. I’d expect this to have an adverse impact on the stock’s price.
More of the same?
So, should I expect to see more of the same in 2024?
There’s a lot to like about the business. It’s made a strong recovery and under the guidance of the tenacious new CEO I wouldn’t be surprised if it keeps up its fine form. But I’m worried the share price has topped out as investors have got carried away. I’m not buying just yet. I’ll be reassessing this in the New Year.
