The Rolls-Royce Holdings (LSE: RR.) share price brought plenty to cheer in 2023. It surged 220%, more than trebling the value of an investment made at the end of 2022. That’s the biggest jump of the whole FTSE 100, by a long way.
We’ve seen a good start to 2024. And with the shares at 309p, at the time of writing, it’s hard to believe we could have picked some up for 65p in September 2022. Or just 35p in 2020.
The big question though, is what happens next? Will this winning run continue, or will we see a share price slide in 2024? I can see things that could push it either way.
Soar?
Rolls-Royce does seem to be driven by momentum right now, and that can bring risk. It could push prices on upwards for quite some time, especially if there’s any kind of fundamental bullishness.
And I’d say there is. For one thing, we have very positive broker forecasts. They suggest earnings per share could climb by 75% between 2023 and 2025. And those estimates have been steadily growing for months now.
There’s a pretty strong ‘buy’ rating among brokers too. And, recently, we’ve even seen a 400p price target from one of them.
Slump?
But then, brokers’ minds can change quicker than the British weather. So I don’t put much store in their targets (or guesses, as I like to think of them).
General FTSE earnings forecasts have been gradually cut over the past six months too. And bullish estimates just might not make sense when the world is in such a dire economic state.
I know Rolls-Royce isn’t too tied to the UK, and its forecast 0.5% growth in 2024 probably won’t do much harm. But global growth is put at only a bit over 2% this year, which might hurt.
And in my experience, the City’s analysts can be just as swayed by sentiment and emotion as anyone else.
Valuation
Ultimately, it has to come down to valuation. And an estimated price-to-earnings (P/E) ratio of 38 for 2023 makes me wince a little. That’s an awful lot of future earnings growth already built into the share price.
Still, if earnings grow as hoped, that could drop to not much above 20 by 2025. Would that be reasonable? Maybe, if all targets have been hit by then, and the global aviation business looks good.
The oil price could have an effect on that. And at around $75 a barrel, I think it’s a bit high now. Between today and 2025, I see more chance of oil falling than rising. As long as the world calms a bit.
Up or down?
So where will the Rolls-Royce share price go in 2024, up or down? I think it’s too close to call. I won’t buy, because I see so many FTSE 100 stocks that look more obviously cheap.
But I’ll leave one last thought — Rolls shares are still below their levels of early 2019.
