The Rolls-Royce (LSE: RR) share price was unstoppable in 2023. During the year, it skyrocketed a whopping 200%.
That placed it as the best-performing stock on the FTSE 100. In fact, it was one of the top-performing companies in Europe.
However, I’m not convinced. It’s been on a great run. But I’m not confident its fine form will continue. As they say, all good things must come to an end.
Why I’m avoiding
Don’t get me wrong, I think there’s lots to like about Rolls as an investment. But there’s one main sticking point for me. That’s investor hype driving its price up too much.
The company seems to have a clear vision for the future. It certainly needs one after its pandemic woes. And investors have clearly bought into this. But I’m worried the market has got carried away.
A 200% leap in a year is mighty impressive. But I’m not convinced it’s sustainable. We’ve seen time and time again investors buy into the hype of a stock only for it to come crashing down. I think Rolls could be the next target of this.
Could I be wrong?
But could I be wrong? I’ve passed on investments before and come to regret it. And I’m sure it’ll happen again in the years to come. Could Rolls be the next one?
Well, maybe. The stock has been fuelled by a strong recovery in air travel, which doesn’t seem to be slowing down. Rolls generates half of its revenues from its civil aviation business. It makes money from the maintenance of aircraft and how often its engines are used. The more planes up in the air, the better for the business. That means the post-pandemic demand that has seen people itching to jet away has provided it a major boost.
There’s also the work of new CEO Tufan Erginbilgic. He took over last year and has since implemented an aggressive turnaround strategy to streamline the firm. As part of this, he’s cut jobs and set ambitious targets for the group. To date, it seems to be working.
I’m still not sold
That’s all impressive. But I’m still not sold. Warren Buffett once said: “If you don’t feel comfortable owning a stock for 10 years, then don’t own it for 10 minutes”. So, what would tempt me to buy Rolls stock today and hold it for the next decade?
One thing would be valuation. And with its shares changing hands for 24 times forecast earnings, I think they look a bit too expensive for me.
I’ll be waiting
With that, I’m holding off from buying shares in Rolls-Royce. If the stock pulls back, I’ll reassess. It’s full-year results are set to be released on 22 February. I’ll be watching those results closely to see how the market reacts.
Until then, however, I’m happy to sit on the sideline. I see plenty of cheaper shares out there I’ll be looking to add to my portfolio before Rolls.
