After a shaky start to 2024, the Rolls-Royce (LSE: RR) share price has begun to find its form again. In the last week, it’s up over 4% at the time of writing. Yesterday saw it climb just shy of 2%.
That’s what we’ve come to expect from the stock. Last year, Rolls-Royce shareholders were treated very well. After rising 200%, its share price closed at around the 300p mark in 2023.
I obviously don’t want to miss out if the stock goes on another charge. I’ve been watching Rolls like a hawk in recent times. Could the last few days be the start of it?
Full steam ahead?
Well, that’s difficult to answer. As much as I wish I could give a definitive answer, there are plenty of factors that have gone into dictating the stock’s performance.
For example, there’s been a lot of change at the company since the appointment of Tufan Erginbilgic as CEO around this time last year. In 2020, the firm announced plans to lay off 9,000 staff due to pressures placed on the business by the pandemic. As his first major move, in November Erginbilgic announced Rolls’ intention to let a further 2,500 jobs go to create a “more efficient and effective” company.
Going forward, he’s also set some rather lofty targets for the group. By 2027, he sees Rolls raking in profits between £2.5bn and £2.8bn. That would be some turnaround from the massive loss recorded in 2022.
Getting ahead of ourselves
Right now, investors seem to be buying into the vision. However, is this just a classic case of investors getting ahead of themselves? A 200% rise in a year is impressive. But is it sustainable?
Erginbilgic may be the man to steer Rolls back to the company it was once. He certainly talks the talk. But I’m worried that the market has got carried away.
I buy for the long term. Ideally, that’s decades. In the short term, share prices can be carried by investor sentiment and hype. But I’m more fussed about where Rolls’ price will be in 10 years plus. And it tends to be fundamentals that dictate that. I don’t want to overpay today only for the investors to soon realise they got carried away and dump the stock.
So, what do the fundamentals say? Well, Rolls-Royce shares change hands for 24 times forecast earnings. I think that’s expensive.
My move
When I look at Rolls, I’m torn. It’s the sort of investment that I could look back on in a few years’ time and wish I’d bought at 307p. Especially if the stock continues to replicate its 2023 performance.
Yet I’m not sure it will. In fact, I’m pretty confident it won’t. For that reason, I’m not buying today. I’m cautious we’re witnessing investors buy into the hype. The firm has made solid strides from its pandemic struggles. But I think we could see its share price pulled back soon.
I’ll be waiting for that moment. If it comes, I’ll be very tempted to open a position.
