The rising Rolls-Royce (LSE: RR) share price was the talk of the town last year. During that time, it gained a whopping 200%. That made the British manufacturer easily the FTSE 100’s best performer.
But will 2024 be much of the same? It’s been a shaky few years for the firm. The pandemic saw it near bankruptcy. And while the stock took a hit, it has posted a strong revival since.
I’ve been watching Rolls-Royce closely. It’s been on my watchlist for a considerable amount of time. Could now be the time to buy?
A strong start
I’m most intrigued to know what’s been fuelling this performance. After all, if this continues, there’s a large possibility the stock will carry on rising.
Well, there are a few catalysts. But arguably the largest is the work completed by CEO Tufan Erginbilgiç. When he took over the firm back in January 2023, he described it as a “burning platform”. Yet since then, he’s taken considerable strides to return the business to its former glory.
As part of this, he’s set ambitious aims for Rolls. By 2027, he’s targeted the firm to quadruple profits to between £2.5bn and £2.8bn. He also plans to generate over £1bn in cash by selling off some of its non-core businesses. This should help it reduce its debt pile.
Rolls’ full-year results aren’t due until the tail end of February. However, it’s predicted that 2023 results will come in ahead of last year’s. With that, it seems he’s making good progress.
A bubble?
So, Erginbilgiç has an ambitious vision. And this has clearly excited investors. However, I’m worried investors may be too excited.
Granted, the business has made strong progress in pulling itself out of its pandemic troubles. But I’m anxious investors have got carried away. In the short term, share prices can be carried by investor sentiment and hype. But I’m a long-term investor, so I’m more worried about where the stock’s price will be in the years and decades to come.
A jump of nearly 200% is impressive. But is it justified? There’s the risk the stock is in a bubble waiting to burst.
Long-term growth
That said, there are reasons to remain bullish on the long-term outlook for Rolls. For example, the aviation sector, which the firm generates nearly half of its revenues from, is predicted to experience large growth in the years to come as the global middle class continues to grow. Most recently, Airbus’s Global Market Forecast predicted a need for over 40,000 aircraft by 2042. That’s a large demand for the firm to potentially capitalise on.
Will it keep rising?
So, will the stock keep rising? And should I be rushing to buy some shares?
Well, I like the moves Erginbilgiç has made during his first year at the firm. But I’m holding off from adding Rolls to my portfolio right now.
At just under 300p, I’m concerned we could see its share price sharply pulled back at any time. If that happens, I’ll reconsider. Until then, I’ll be waiting on the sideline.
