The Rolls-Royce (LSE: RR.) share price is in a strong uptrend right now. This year, it’s risen about 75%. Over the last 12 months, it’s leapt around 150%.
Wondering how high the FTSE 100 stock can climb? Here’s a look at City analysts’ latest share price targets.
New forecasts
In recent months, a handful of brokers have announced new share price forecasts for Rolls-Royce. I’ve listed the brokers and their respective price targets below:
Should you invest £1,000 in Rolls-Royce right now?
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- UBS – 640p (8 October)
- Deutsche Bank – 555p (3 September)
- Jefferies – 640p (3 September)
- Bank of America – 675p (2 September)
- JP Morgan – 535p (6 August)
Of those brokers, Bank of America has the highest target at 675p. That’s about 29% higher than the current share price.
It’s worth noting that the average price target, according to my data provider, is 535p. That’s only around 2% higher than the share price now. But that will include older price targets that haven’t been updated. Quite a few brokers haven’t changed their targets since earlier in the year.
I’ll point out that broker targets and forecasts shouldn’t be relied upon. Often, they’re way off the mark. The other thing to understand is that these targets are usually 12-month forecasts. In other words, analysts don’t expect the price targets to be hit tomorrow.
Worth buying today?
Should investors consider buying Rolls-Royce shares today? Perhaps. Personally though, I think there are better UK shares to buy.
Don’t get me wrong – Rolls Royce has a lot going for it. At the moment, its profits are soaring. This year, earnings per share are expected to come in at 17.8p. That’s about 29% higher than the figure for 2023 (13.75p).
Free cash flow – an important metric in this industry – is surging too. Last year, it rose 154% to £1.3bn.
The thing is, a lot of future growth appears to be baked into the share price already. Currently, the forward-looking price-to-earnings (P/E) ratio is about 30.
That high valuation may be justified right now. The price-to-earnings-to-growth or ‘PEG’ ratio is around one today and a ratio of one suggests a stock offers value.
But what if earnings growth was to slow in the years ahead for some reason? For example, what if the company was to experience more engine problems or a loss of a key customer?
In this scenario, returns from the stock could be muted. It’s worth noting here that the dividend yield’s only around 1%, so they’re unlikely to provide a meaningful source of return.
I won’t be chasing this stock
One other thing worth pointing out is that the stock’s risen about 700% from its 2022 lows. That’s a massive gain in a short period. I don’t think it’s smart to chase the stock after that kind of gain. Ultimately, I think it’s better to focus on other opportunities in the market (that’s what I’ll be doing).
The good news is that there are a lot of UK stocks that look very attractive right now and could generate strong returns in the years ahead. If you’re looking for investment ideas, you can find plenty right here at The Motley Fool.
