£10,000 invested in Rolls-Royce shares one year ago is now worth…

Rolls-Royce shares have continued to thrash the market in the last 12 months. But does a worrying development suggest that the party’s ending?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young black colleagues high-fiving each other at work

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.

Back in September 2023, Rolls-Royce (LSE: RR.) shares were sitting pretty at 215p a pop. That was a remarkable price considering that the very same stock changed hands for just 75p or so 12 months earlier.

At the time, I just couldn’t bring myself to buy, believing that any company would struggle to replicate a gain of around 186% in the following year.

In one way, I’ve been completely on the money. Rolls-Royce has failed to match this form. But it’s still done seriously well.

Should you invest £1,000 in Aj Bell right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Aj Bell made the list?

See the 6 stocks

Astonishing gains

Using today’s share price, I could have made an incredible gain of 119% had I bought in September 2023. So, an investment of £10,000 would have grown to £21,900. For comparison, the FTSE 100 is up only 11% over the same period. And that’s actually a pretty great return considering just how lacklustre the index has been in recent times.

Created with Highcharts 11.4.3Rolls-Royce Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Is there even more to come? At the risk of sounding like a stuck record, I’m not so sure.

Worrying development

The engine failure on a Cathay Pacific flight earlier this week seems to have prompted at least some investors to bank a profit. We’re seeing a bit more selling pressure today (6 September). This follows the announcement that the European Union Aviation Safety Agency has asked for visual checks to be made on some of the company’s engines.

The question being asked now is whether this is a one-off issue or something more alarming. If additional faults are discovered, we can expect more flights to be cancelled by airlines. This would clearly be a huge issue for Rolls-Royce. Put simply, it makes most of its cash when planes are in the air.

Is the stock priced for perfection?

Now, reputational and earnings hits would be bearable for me if it was clear that any problems were being swiftly remedied and the company’s valuation wasn’t already frothy. However, Roll-Royce shares currently change hands at a forecast price-to-earnings (P/E) ratio of 28, according to my data provider. This implies investors are excited about the firm’s outlook. But it also suggests they will be merciless if the company even slightly disappoints.

I might be comparing apples with oranges here but this feels similar to what’s happening across the pond with Nvidia. While the chipmaker’s long-term outlook still looks very positive, it seems that near-term expectations have finally overtaken reality. And its shares are down 12% in just the last five trading days.

Another thing I’m contemplating is whether this week’s news could mean that Rolls-Royce’s plan to restart its dividend — announced in August — might be postponed. Should this be the case and the stock’s purple patch of form come to a screeching halt as a result, I won’t be compensated for staying patient and waiting for a recovery.

I’m still wary

Through effective cost-cutting and an admirable no-nonsense approach, I think CEO Tufan Erginbilgiç has done a remarkable job of turning this company around. I certainly wish my crystal ball had been working and pushed me to invest one year ago. At the height of the pandemic would have been even better. Congratulations to anyone who did. No sour grapes here.

But I continue to be wary of Rolls-Royce shares, albeit for different reasons than before.

Should you invest £1,000 in Aj Bell right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Aj Bell made the list?

See the 6 stocks

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.

Paul Summers 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

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »