There’s been a lot of buzz around Rolls-Royce (LSE: RR) shares in recent times. After rising 178.6% in the last 12 months, it’s easy to see why.
If I’d invested £10,000 in the stock back then, today I’d be sitting on £27,860. That’s seriously impressive.
Rolls has got off to a slower start in 2024. Still, it’s up over 6%. However, I’m not keen on buying any shares today. I think investors are getting too carried away.
Road to recovery
In all fairness, while I think the market has got ahead of itself, I must take my hat off to Rolls. Since its 2020 lows, it’s made a strong recovery. Back then, the firm reported a loss of £4bn. To alleviate the pressure placed on it by the pandemic, it announced plans to let go of over 9,000 staff.
Now this year, it’s forecast to post a 32% rise in earnings. That’s already coming on the back of what’s predicted to be a strong 2023 when full-year results are released. This solid performance has been reflected in the stock’s price. Since October 2020, it’s up a whopping 680.7%.
Let’s take a step back
But that’s the exact reason I won’t be buying Rolls shares today. That’s a monumental rise. But it can’t be sustainable, right?
I certainly don’t believe so. It’s often said in the short term that a stock’s performance can be heavily influenced by investor and market sentiment. Just as the stock has soared, I’m cautious it could fall.
That’s not to say there aren’t things to like about the business. CEO Tufan Erginbilgiç has laid out a roadmap to return the firm to the high-performing entity it once was. As part of this, he plans to streamline the business. By 2027, he wants the firm to be turning a profit of between £2.5bn and £2.8bn. That would be an remarkable turnaround from the loss seen in 2022.
Erginbilgiç has investors excited. He certainly talks the talk. Shareholders will be hoping he can deliver on his ambitious aims.
That’s not me
If I were an investor keen to try and make quick gains as, say, a day trader, Rolls would be a stock I’d consider. But that’s not me. I’m a Fool. Any stock I buy I intend to hold for the years and decades to come.
I always like to think of Warren Buffett when I’m contemplating investing in a company. He says: “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes”. Right now, Rolls doesn’t pass this test.
Never say never
So I won’t be joining other investors in buying Rolls. But that’s only for now.
I do like the business. And Erginbilgiç certainly seems to be the man who can lead the business back to its best. But I’m not comfortable buying in at its current price.
That said, that’s not to say Rolls isn’t on my radar. If we see a market correction, I might jump in. For now, I’ll be waiting on the sideline.
