The rise out of the dust for the Rolls-Royce (LSE:RR) share price has been nothing short of meteoric. It’s up 184% over the past year, not bad for a FTSE 100 constituent. Yet the question I’m hearing a lot is the one asking whether this growth stock has legs to keep going or not?
Here are what some of the top bank analysts are forecasting, along with my own thoughts.
Looking at the numbers
From a current price of 320p, there’s a real mix of opinion from those analysts. Some of the major US banks think it could continue to outperform over the next year. Citi top the charts, with a forecast of 431p. JP Morgan and Goldman Sachs see it at 398p-400p.
Some French banks feel that the share price will stagnate around current levels. Société Générale has a price target of 322p, with BNP Paribas at 313p.
Finally, there are some that feel the stock will fall from here. Berenberg have the lowest target, at 240p. Morningstar is also looking for a fall below 300p, with their forecast of 298p.
All of these figures are for the coming year, but can be changed at any moment by the research team in the bank that put them out.
Some thoughts behind the targets
It’s interesting to note some of the thoughts behind the price targets. Berenberg accompanied the 240p target with some notes about the stock.
For example, the team said that positioning in the stock was very crowded. What this means is that a lot of people have piled in already and bought Rolls-Royce shares. Therefore, it’s harder to generate further gains as the market in general has already got a lot of exposure to the firm. This can also be dangerous, because if some people start selling, everyone might rush for the door. This could cause panic selling, triggering a large share price fall.
On the other hand, the team at Citi are very optimistic about further gains. It said earnings per share forecasts were up 27% in the near term and 52% in the long term. Further, good cash generation should help the business going forward.
Adding my two cents
I think Rolls-Royce has put the pandemic woes behind it. The full-year report is due out later this week, and I expect a strong set of results.
Yet my concern is that it’s already factored in the current share price. The forward estimated price-to-earnings ratio is 34.39. This is high, so even if earnings per share do increase, I don’t see huge potential for the stock to rally.
If the results disappoint, then it could trigger a sharp drop. This is where I’d likely come in and buy. So even though I don’t think the current rally can continue, if we do see a fall towards the 250p region then I think it’s a dip to consider buying.
