Rolls-Royce (LSE: RR) shares took off like a rocket in autumn 2022 and they’ve been flying ever since. They’re up almost 500% over two years. Who needs Nvidia anyway?
I’m generally wary of momentum stocks assuming that at some point, they’ll burn themselves out. Yet to my surprise, the Rolls-Royce share price continued to shine in 2024.
It opened the year trading at around 297p. Today, it’s nudging 587p. That’s an increase of a 97.6%. There was no dividend. That went during the pandemic but should make its long-awaited comeback this year.
This FTSE 100 stock’s a world beater
If I’d been brave enough to invest my full £20,000 Stocks and Shares ISA allowance in the FTSE 100 engineering giant at the start of 2024, I’d have a whopping £39,520 today. That shows the greater potential rewards of investing in individual stocks, rather than merely tracking an index. Naturally, the risks are higher too.
I won’t calculate how much I’d have if I’d invested £20,000 in Rolls-Royce two years ago. That would just make me sad.
I do hold this stock so I’ve participated in its success but as ever, the only question that really matters is where will Rolls-Royce goes next?
I’ll make one confident prediction. The share price isn’t going to rise 100% or 500% or anything like that. Transformative CEO Tufan Erginbilgic has sprinkled his magic, but hard work lies ahead. With the shares trading at 42.79 times trailing earnings, he can’t afford any slip-ups. Rolls-Royce is priced for growth, and had better deliver it.
Erginbilgic deserves his early success for working hard to change the company’s culture, boost its operational efficiency, reduce costs and expand margins. He’s also got lucky, timing his arrival just before the post-Covid recovery in global aviation, which revived demand for the company’s jet engines and aftermarket services.
Rolls-Royce isn’t just about aircraft engines, of course. Q3 results, published on 7 November, showed strong demand remaining across all three divisions: civil aerospace, defence and power systems.
Growth will be a lot slower
The group’s also pushing into green technology, such as small modular nuclear reactors and sustainable aviation fuels. With luck, this could drive long-term value, but that’s far from guaranteed.
An economic slowdown, geopolitical tensions and supply chain disruptions could all knock Rolls-Royce off course in 2025. Its Trent 1000 engines remain controversial, and US rival Boeing has shown us the pain technical problems can inflict on a company’s share price.
The 12 analysts offering one-year share price forecasts for Rolls-Royce have produced a median target of 609.6p. If correct, that’s an increase of a meagre 4.2% from today. That’s a bit of a comedown, after all the recent excitement. The shares made fare better if we get a broader economic recovery. That’s in the balance too.
Eight analysts nonetheless label the stock a Strong Buy, with another two calling it a Buy. Only one calls it a Strong Sell.
Anybody coming to this stock today must accept they’ve missed the best bit. It feels a bit like wandering into a film just as the credits roll. I’m holding on to my Rolls-Royce shares for the long-term, but won’t be investing more. And certainly not £20,000.
