My Rolls-Royce share price prediction for the second half of 2024

The Rolls-Royce share price has had a great first half of 2024, rising by 55%. Muhammad Cheema takes a look at how it might move for the rest of the year.

| More on:

Image source: Rolls-Royce Holdings plc

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.

The Rolls-Royce (LSE:RR) share price had a terrific 2023, climbing by over 200%. This made it the standout performer among FTSE 100 companies.

Now you might expect that after such a run, it would experience a more modest return this year. However, modest seems to be a word that is alien to its shares.

Fast-forward six months and they’ve already skyrocketed by 55%. This easily trounces the Footsie, which has gone up by a more ‘modest’ 7%.

If we stretch back our time horizon to October 2022, Rolls-Royce shares were trading for the lowly price of 70p. At the time of writing on 5 July, it’s 461p, representing a 563% return.

Imagine being a shareholder of the company during that run! If I’d invested £10k back then, I’d have £56,300 today. But I’m not going to think too much about this missed opportunity. Rather, as a forward-looking investor, I want to predict where the share price will rest at the end of the year.

The bull case

Under its current CEO, Tufan Erginbilgiç, who took the helm in early 2023, Rolls-Royce has staged an impressive comeback.

If we look at full-year results for 2023, both the top and bottom lines grew at a strong pace. Revenue went up from £12.7bn to £15.4bn. Profit after tax also accelerated by 620% from £158m to £1.142bn.

Seeing a business improve its operating margins shows us that management is running it well. So, this increase from 5.1% to 10.3% is good to see.

Another point to note is that its net debt fell from £3.3bn to £2bn by the end of 2023.

The company is also guiding for strong growth over the medium term (based on 2027 timeframes). What excites me is how the operating margin is expected to improve further to 13%-15%. The civil aerospace division, the company’s largest revenue source, is expected to be operating with a margin of 15%-17%. This is also the fastest-growing division, so it’s nice to see it will also be the most profitable.

The bear case

The above looks nice and well, but it’s not so simple.

Firstly, Rolls-Royce shares are quite expensive. Its price-to-earnings (P/E) ratio of 30 is over double the average of the Footsie.

Secondly, its greatest strength can also be considered its greatest vulnerability. Its civil aviation engine sales are heavily dependent on the wider economy, which is outside of the firm’s control. If finances for individuals become strained, then they may be less likely to take a holiday. Or if another pandemic occurs, travel will be restricted. These scenarios can hamper the demand for flying.

Thirdly, after such a run-up in its share price, those who have invested in the stock for a while may take some profit off the table. This could create downward pressure on its share price.

Verdict

Overall, I believe Rolls-Royce shares are already priced for perfection. I don’t think the share price will go up much higher by the end of the year and I can see it hovering around the 460p mark.

However, that doesn’t take away from the fact that it’s still a great company. If I were to look at a longer time horizon than the next six months, I’d consider buying its shares because of the strong growth it’s exhibiting.

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.

Muhammad Cheema has no position in any of the shares mentioned. The Motley Fool UK has recommended 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

£10k in an ISA? Here’s how I’d aim to generate a ton of passive income

I dream of escaping the shackles of a salary with financial independence and a steady stream of passive income. Here’s…

Read more »

Investing Articles

Are Burberry shares a bargain or a value trap?

Appearances can be misleading in the stock market. Shares that look like a bargain can turn out to be a…

Read more »

Investing Articles

How I’d target £17,673 passive income with just £100 a week

Our Foolish writer explains how he’d build a portfolio capable of generating a life-changing passive income with limited capital.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

If I’d put £20k into a FTSE All-Share tracker fund 10 years ago, here’s what I’d have now

A lot of UK investors have money in FTSE All-Share tracker funds. Here, Edward Sheldon looks at how these products…

Read more »

Investing Articles

How I’d invest £10k in a SIPP to target £28,000 annual passive income

Investing just £10k today in a SIPP could be the key to a chunky retirement income in the long run.…

Read more »

Investing Articles

How I could earn a second income worth £35,000

Millions of us invest for a second income. Our writer explains how he's making it work and shares tips for…

Read more »

Investing Articles

3 ways Labour could impact the Rolls-Royce share price

Labour have swept to power on a pro-worker, pro-business ticket. But how could the new government influence the Rolls-Royce share…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

No savings at 35? I’d use Warren Buffett’s method to try and build massive wealth

Warren Buffett made most of his multi-billion-dollar fortune after turning 50. So what was his trick to building enormous wealth…

Read more »