If I’d bought Rolls-Royce shares 2 years ago here’s what I’d have now – it’s staggering!

The Rolls-Royce share price performance has been so astonishing that Harvey Jones is struggling to get his head around it.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Rolls-Royce (LSE: RR) shares just won’t stop. They’ve climbed again over the last week, even though the FTSE 100 rally finally went into reverse.

The Rolls-Royce share price even smashed US tech hero Nvidia over the last year. It’s up 202.58% in that time, while the US chip maker trailed at 184.36%.

As with any rally, the real benefits have fallen to those who got in early. If I’d invested £10,000 in Rolls-Royce shares two years ago, I’d be bringing my retirement date forward by a year or two. The stock has skyrocketed a scarcely believable 418.93% in that time. My £10k would have grown fivefold to £51,893.

It’s a ‘superstock’

I did invest a much smaller sum on October 2022, put not enough to transform my pension planning. [Note to self: put more money where your mouth is next time].

Momentum stocks like this fill me with a mind-altering cocktail of FOMO (fear of missing out) and greed. I’ve learned to approach with caution, because nothing lasts forever.

Like many, I expected the Rolls-Royce share price to have started falling by now. Yet the good news continues to roll in. On 23 May, transformative CEO Tufan Erginbilgic declared a “strong start” to 2024 despite industry-wide supply chain issues.

The aircraft engine maker has been paying down debt, boosting its credit rating, widening margins, improving contracts, and strengthening its balance sheet. Erginbilgic remains a lucky general, as long-term service agreement large engine flying hours return to pre-pandemic 2019 levels on his watch.

Its Defence arm has been winning contracts, with the Australian AUKUS submarine programme using Rolls-Royce reactors. The Power Systems division is growing too, driven by higher demand from artificial intelligence (AI) and cloud services providers

FTSE 100 FOMO

Erginbilgic isn’t letting up. However, any investor hoping for another 400% growth spurt needs to settle down. Rolls-Royce shares snapped back after being oversold. The danger is that today’s FOMO-fuelled rally means they’re overbought instead.

It’s inevitably pricier than the average FTSE 100 stock, trading at 31.9 times forward earnings for 2024. If performance falls short of today’s high expectations, the stock could get an overnight rerating. Markets are banking on a dividend too, after years when it paid no income. The forecast yield is 0.6% but that should grow over time. I’d love to add Rolls-Royce to my portfolio, but can’t bring myself to do it today.

From here, the short-term chance of price growth is surely limited. Price drop risks, by contrast, are growing. That’s inevitable, given its outrageous success. I think the long-term outlook’s strong. I’m still keen to buy the stock, just not at today’s price.

If Rolls-Royce shares dip, I’ll buy with the intention of holding for years and years. If they don’t, I’ll just have to accept that I’ve missed out, and look for the next juicy FTSE 100 recovery play instead.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Nvidia and Rolls-Royce Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

2 mouthwatering FTSE growth stocks I’d buy and hold for 10 years

Growth stocks purchased today could be the gateway to many years of capital growth and returns. Here are two picks…

Read more »

Investing Articles

Can the IAG share price really be as dirt cheap as it looks?

While most shares have recovered since the Covid days, the IAG share price is staying stuck to rock bottom. Surely…

Read more »

Investing Articles

BAE Systems shares are flying! Have I missed the boat?

Sumayya Mansoor looks into whether or not BAE Systems shares are still a good buy for her portfolio after the…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

1 heavyweight FTSE 100 share I’d buy as London retakes its crown

Some Footsie firms are extremely large, but that doesn't mean they couldn't get even bigger. Here's one such FTSE 100…

Read more »

Investing Articles

I’d buy 5,127 National Grid shares to generate £250 of monthly passive income

With a dividend yield of 6.5%, Muhammad Cheema takes a look at how National Grid shares can generate a healthy…

Read more »

Investing Articles

The FTSE 100’s newest member looks like a no-brainer to me!

This Fool explains why she sees the newest member of the FTSE 100 as a great opportunity after its recent…

Read more »

Investing Articles

Empty Stocks and Shares ISA? Here’s how I’d start earning a second income from scratch

Like the thought of earning extra cash tax free? Our writer explains what he'd do to begin earning passive income…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

No savings at 25? I’d start by investing £3k in these 3 red-hot FTSE 100 shares

Harvey Jones thinks these three FTSE 100 stocks would be a great way to kickstart a portfolio of UK shares.…

Read more »