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How long will it take for the Rolls-Royce Holdings (LSE: RR.) share price to reach 300p, 400p, 500p? That’s what many of us have asked ourselves over the past 12 months.
Every time, the answer was the same. Sooner than we think.
Rolls has already been above 500p, and is hovering around that level as I write. So how soon will we see 600p?
I’m going out on a limb to say I don’t think the price will get that far this year. In fact, I see a good chance that Rolls-Royce could end 2024 significantly lower than today.
Guesswork
Let me qualify that. Guessing at which way a share price might go in the short term is not a good way to choose an investment. People who try it generally tend to end up wrong as often as they’re right.
So, I’m making no actual predictions here. This is just for fun, based on past experience with growth shares, and a few instincts as to what might happen. And I’m not going to let my chronic inability to predict share prices put me off.
In fact, I think Rolls-Royce could be a nice long-term investment right now. Even after its staggering price rise. And even if it should fall in the short term.
The good stuff
Why am I upbeat about the long-term future? With the share price up around a fiver, we’re looking at a forward price-to-earnings (P/E) ratio of 28.
Yes, that’s about twice the long-term FTSE 100 average. But we could see it down to 22 based on 2026 forecasts. And if growth prospects keep on as strong as they are now, it could turn out to be good value.
Then again, the PEG ratio is a popular way to compare the P/E valuation with expected earnings growth. Investors like it to be under one, ideally less than 0.7. But for the 2025 year, it’s up at 2.4 at Rolls.
That could mean there’s too much growth expectation already built into the share price.
Sentiment
My main reason for thinking the Rolls-Royce share price could fall before year-end comes down to investor sentiment. And that’s based on years of growth stock investing when I was younger.
Eventually, growth (or just expectations) will slow. That’s inevitable, otherwise a company could eventually become infinitely large.
A slowdown in growth has almost always meant a downward share price rating, at least in the growth stocks I’ve watched.
It might not be for a number of years, or expectations could cool at the next quarterly update.
Stock market
There’s another factor too. It’s falling interest rates, and a brighter outlook for financial and other stocks.
If I’d bought Rolls-Royce before the price sky-rocketed, I think I’d be looking to take some profit and put it into banks, insurers or house builders while they’re still cheap. Others might well do that.
Still, at the end of the day, maybe this is just me wishing for a fall and a new buying opportunity, to make up for all the ones I’ve missed.
The post Here’s how I think the Rolls-Royce share price might end 2024 appeared first on The Motley Fool UK.
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Alan Oscroft 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.
Motley Fool UK 2024