The Rolls-Royce Holdings (LSE: RR.) share price has climbed more than 1,300% since its lowest point of 2020. And I see reasons to think it could head even higher. Or lower.
At the most pessimistic point, many investors feared the worst. With debt looking like it might be too much to recover from, the company was almost priced to go bust.
But the doom-mongers had reckoned without the heroics of the Rolls-Royce management team, and new CEO Tufan Erginbilgiç.
When the new boss took control in 2023, he famously told employees that they were standing on a “burning platform” and they had one last chance to change it. They changed it.
Where next?
With the share price up above 550p, after having dipped below 40p in 2020, what can we look forward to now?
One thing I do is check out what broker forecasts say, and they look pretty buoyant to me.
Out of 17 analysts, I see only two who think we should ‘sell’. The majority have Rolls shares as a ‘buy’, while just a small handful have them on ‘hold’. But then it gets weird.
According to MarketScreener, the average broker price forecast stands at 547p. And at the time of writing, the price is already above that.
So they think the price will fall, but that we should buy? Well, don’t let anyone tell you that share price forecasts involve a rational process. I treat them with a bigger helping of salt than I put on my chips.
Wide range
That average target does hide a very wide range, though. We’re talking about a highest target of 700p, which could make Rolls-Royce shares still look cheap now.
But at the other end, the most bearish broker sees a crash all the way down to just 240p.
I makes me wonder if these folk are all looking at the same company. And if they’re using any kind of established analysis methods other than just pulling numbers out of the air.
Still, we long-term investors know that we have to do our own research, come to our own conclusions, and make our own buy/sell decisions.
So can we do any better, looking more closely at valuation measures?
Stock valuation
Today’s forecasts put Rolls shares on a price-to-earnings (P/E) ratio of a bit over 31. If the real worth is no more than the FTSE 100 average, that could signal a 50% price fall to around 275p. Hmm, maybe I see where the broker bears are coming from.
But then, I’d say Rolls-Royce is far from average, with strong earnings growth expected.
That growth could drop the P/E to 24 by 2026. At GE Aerospace in the US, we see a 2026 P/E of 28. US-listed shares usually trade at higher P/E multiples, so maybe that means Rolls isn’t such a bargain.
The future
Will I buy? At today’s price I’d need to be more enthusiastic about the bullish possibilities, especially as I’m less uncertain about many other stocks. But that could change if we get any dips.
