Could Rolls-Royce shares halve in value this year – or double?

After another incredible 12 months for Rolls-Royce shares, Christopher Ruane considers whether the coming year could be even better — or far worse.

| 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.

Image source: Rolls-Royce 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.

Just like the 12 months that preceded it, 2024 was a vintage year for Rolls-Royce (LSE: RR). While Rolls-Royce shares were not the best performer in the FTSE 100 index, as they had been the prior year, they were still on rip-roaring form.

Over the past year, the aeronautical engineer’s share price has soared 94%.

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

Looking over five years, the company’s pandemic-era existential crisis now seems a long time ago. Rolls now stands 165% higher than it did at this time in January 2020. That was before the pandemic started to make the City nervous.

Should you invest £1,000 in Novocure 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 Novocure made the list?

See the 6 stocks

So, having almost doubled over the past year, could the Rolls-Royce share price do the same again in the coming 12 months? Or might it halve, taking it back close to where it stood a year ago?

The doubling scenario

At first glance, the prospect of the share doubling seems far-fetched. After all, this is a mature company in a mature industry that has already soared over the past couple of years. I, for one, would be surprised to see this happen in the coming year, although that does mean it cannot.

However, there is a case to be made for this scenario.

The current price-to-earnings (P/E) ratio is 22. That does not strike me as cheap. Then again, it is substantially cheaper than other engine makers such as New York-listed peers GE Aerospace (sitting at 33) or Pratt and Whitney owner RTX (36).

Part of that disparity can be explained by the generally lower valuations in the London market currently, compared to US peers. Still, Rolls could move up substantially (though not double) without being more expensive on a price-to-earnings basis than key rivals.

There is another possible lever for a big leg up in the Rolls-Royce share price and that is improved earnings.

In that case, even maintaining today’s P/E ratio, let alone a higher one, would imply a higher price. Both basic and underlying earnings per share showed a marked jump in 2023 compared to the prior year.

Last year’s annual results should come out next month. They will include details on how the engineer is progressing against its ambitious medium-term financial targets.

If the company delivers strong further improvements in earnings, I think that could help propel the shares higher.

The halving scenario

I doubt those results will disappoint significantly, or we would likely have had a profit warning before now.

But one thing that could send the share price down is if the company signals that it looks unlikely to meet its self-imposed targets over the next several years. It has been an inconsistent performer for decades, so I do see that as a credible risk.

One challenge of trying to boost earnings is that, after the initial cost cuts (themselves posing reputational risks in a safety-critical industry), pushing up selling prices can lead customers to shop around more.

A key risk that I think could lead to the shares halving is a sudden external shock that leads to a dramatic slowdown in civil aviation demand. This is why I will not invest at today’s price.

The pandemic was an example, but such a shock could also be a volcanic eruption grounding flights, or terrorist attack.

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

C Ruane 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

At a 52-week low but forecast to rise 73%! Is this growth share the FTSE’s top recovery play? 

This FTSE 100 growth share has taken an absolute beating over the past two years but Harvey Jones says the…

Read more »

Investing Articles

This FTSE 250 share offers a juicy 9.8% yield. Will it last?

This well-known FTSE 250 share has a percentage dividend yield approaching double digits. Should Christopher Ruane add the income share…

Read more »

Investing Articles

Is a £333,000 portfolio enough to retire and live off passive income?

A third of a million pounds can generate a serious amount of passive income, but relying on this sum alone…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing For Beginners

Why FTSE 100 investors should pay attention to ‘Liberation Day’

Jon Smith explains why the upcoming tariff announcement from across the pond could have an impact on the FTSE 100,…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Here’s why Nvidia stock fell 13% in March

The Nvidia stock price rise was looking unstoppable. Should investors now be wondering if the same might be true of…

Read more »

US Stock

It’s ISA deadline week! Here’s my 3-step game plan

Jon Smith tries to calm the hype around the last minute ISA rush to buy stocks and explains why he's…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

£10,000 invested in BAE Systems shares at Christmas is now worth…

BAE Systems shares have been surging in the FTSE 100 in 2025, driven higher by the wavering US commitment to…

Read more »

Investing Articles

Up 19% in 2 weeks, can the Tesla share price rebound further?

Tesla's first-quarter delivery numbers came out today. Will they help persuade our writer to invest his money at the current…

Read more »