The Rolls-Royce (LSE:RR) share price has been on an absolute tear in the last 12 months, rising 163.3%. After nearing bankruptcy in 2020, the business has posted an impressive revival.
It has carried this fine form into 2024. Year to date, it’s up 34.7%. That makes it one of the best performers on the FTSE 100.
But as investors, we shouldn’t dwell too much on the past. It can help us make more informed decisions. However, it’s where a stock has the potential to go in the times ahead that’s more important.
With that in mind, where could Rolls end this year?
A pull back?
As I highlighted above, the stock has been gaining serious momentum in the opening months of this year. However, I’m worried that we could see a share price correction in 2024.
As I write, a share in the British icon would set me back £4.05. I don’t see that as good value for money.
But why do I say this? Well, I think the stock looks expensive. It trades on close to 30 times earnings. For comparison, the Footsie average is around 11.
To go with that, the industry that Rolls operates in is volatile. Global conflicts have the potential to seriously hinder its operations. There are other external factors to consider as well, such as demand for travel and events such as the pandemic.
Predicting when and by how much a stock may fall is nigh on impossible. That said, I want to explore a few potential scenarios.
A 10% fall from its current price would leave its share price sitting at £3.65. We’ve seen the Rolls Royce share price fall below the £4 mark in recent weeks. I think there’s the potential that it finishes 2024 somewhere between these two points.
According to MarketScreener, the low price target for analysts covering the stock is £2.40. While I don’t expect it to swoop anywhere near that low, I reckon we could see Rolls pulled back slightly this year.
I’m cautious market hype has pushed up the stock. The business has a history of significant swings in earnings from year to year. Should earnings take a hit in 2024, this could see some shareholders panic.
Could I be wrong?
Then again, there’s all the chance I could be wrong. If Rolls carries on with its strong turnaround, its price could keep rising.
That’s especially true given the work CEO Tufan Erginbilgiç has done. Last year saw underlying operating profit jump 144% to £1.6bn under his reign. Free cash flow also climbed 155% to £1.3bn. Looking ahead, Erginbilgiç wants profits closer to £2.8bn by 2027.
What I’m doing
I like where Rolls is heading as a business and, over the long run, I expect the company to continue to prosper. But I won’t be buying its shares today. They’re simply too expensive for my liking.
There’s plenty of buzz surrounding the company and its impressive rise at the moment. And that worries me.
I’ll be keeping a close eye on the Rolls share price for the remainder of 2024. If the stock recoils to a more sensible price that I’m willing to pay, then I’ll add it to my portfolio.
