Rolls-Royce Holdings (LSE: RR.) shares have stunned the investing world — soaring a massive 880% in five years. That’s even with the shares down 12% from their 52-week high in late February.
Is the recent dip anything to worry about? Markets have been nervous since the Iran conflict started. And a number of the FTSE 100‘s big risers have also fallen back a bit. Barclays and Lloyds Banking Group have, and with bigger dips than Rolls-Royce.
From past to future
Looking back over the past few years with a view to the future, one thing strikes me. Every time Rolls under-promises and over-delivers at results time, everyone seems to expect more. That’s private investors and City experts alike. And you know what? They keep getting more.
But good things like this have to come to and end, right? Well, not necessarily. Yes, I’m sure Rolls-Royce shares can’t keep multi-bagging every five years. If they did, there might soon be no investors’ money left for anything else.
And I really don’t think Rolls-Royce deserves to reach Tesla valuations levels. Then again, I don’t think Tesla does either — though, that’s maybe for another day. But I still see solid potential for long-term share price growth, if at a more sedate pace. But what do analysts say?
Price targets
Deutsche Bank recently raised its price target for Rolls-Royce shares to 1,550p. That would be enough to turn £10,000 invested today into £12,400. Targets are usually relatively short-term too, so it would be a nice outcome.
It was before the Iran thing kicked off, though. More recent targets suggest a consensus of around 1,390p. At that price, we could see the £10,000 growing to £11,100. That’s more modest, but far from bad. And there’s still a pretty strong Buy consensus among forecasters.
Saying that, we need to keep our eyes peeled for updates as the Middle East chaos continues. On top of the humanitarian costs, it isn’t helping the aviation industry.
Dangers
I remain a long-term optimist over Rolls-Royce. But I must point out that my Motley Fool colleague Royston Wild has identified reasons why Rolls shares might continue their current downturn. They’re very real dangers, and I recommend checking out his thoughts.
He points to softening demand for engines, and for Rolls-Royce’s services. Civil aviation is the company’s biggest business. And global strife makes that a very tricky thing to get a handle on right now. The stock market doesn’t like uncertainty.
Rolls faces rising production costs too, and not just from bigger fuel bills. Those should also hit Rolls-Royce customers, for a possible knock-on effect on demand. And Royston points to valuation too — a forecast price-to-earnings (P/E) ratio of 33 isn’t generally seen as bargain basement.
Time of change?
Any potential setbacks are coming at a key time of change for Rolls-Royce. It’s moving from a rapid recovery phase into a more sustained long-term maturity. And that can lead investors to re-evaluate a stock’s valuation.
I do still think long-term investors should continue to consider Rolls-Royce shares. But it’s surely a key time to focus carefully on these risks too.
