Has the Rolls-Royce share price increased?

It has been a rollercoaster ride Rolls-Royce (LSE: RR) in recent years. Standing at a penny in 2022, Rolls-Royce’s share price has rebounded sharply. Shares in the aerospace engineer have been up more than £4 each to hit £4.35 this month.

A few days ago though the stock slipped. This may just be part of the normal ups and downs of the market. But it could also indicate that the City thinks the stock has gone up too much, too quickly and the price is responding accordingly.

Amazing ride

Last year, Rolls was the best performer FTSE 100 share. Since then, it has continued to gain momentum, rising 37% so far this year.

That has been the result of two things. One is to improve business performance, as shown by last year’s results. A postal duty loss of £1.1bn the previous year turned into a £2.4bn gain this time.

But the second thing has been the management of Rolls-Royce to set high expectations when it comes to future performance.

That has excited investors. If Rolls-Royce can achieve its medium-term goals, even its recent share price may look like good value. For example, the current market capitalization of around £35bn is around 12-14 times target underlying operating profit for 2027.

If the company can meet those challenging goals in the medium term, it can probably do better in the longer term. On that basis, Rolls-Royce’s current share price could still turn out to be a long-term bargain, even after its steep rise over the past year.

Show me the money

Why, then, have stocks seemed stuck in recent days? It’s important to keep things in perspective – a few days of decline don’t necessarily indicate a long-term trend.

At the moment, it is too early to tell if Rolls-Royce’s share price has risen.

I think some investors will be taking profits off the table by selling, happy to turn the huge paper gains of recent months into real money. That may partly explain the recent price movement.

The story continues

It could also be that the stock is stalling so that the real situation is realized.

The price increase is largely supported by the business potential shown by the medium-term objectives. But that remains a target – now City are waiting to see how Rolls can meet it. After all, it has a long history of poor financial performance, with several stellar years followed by weaker ones.

On that basis, I think the stock may have held up for a while, awaiting further confirmation that the business is on track to deliver. That can come in the form of a business statement, or in an interim results stage, for example. However, only time will tell.

My take

Although I like the business, I think the current price of Rolls-Royce gives me little security as an investor.

The business has a large installed customer base, less competition and unique technology… all strong points.

But a sudden unexpected event could immediately harm demand from the airline’s customers, a risk that I don’t feel is accurately reflected in the current share price.

Because of that, I don’t plan to buy.

Post Has the Rolls-Royce share price increased? appeared first Motley Fool UK.

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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Rolls-Royce Plc. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Affiliate Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that focusing on a wide range of knowledge does We are the best investors.

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