The Rolls-Royce (LSE: RR) share price took off last year. During the last 12 months, it shot up nearly 190%. In the last six months alone, it’s jumped 100%! At times recently, it seems like the stock wouldn’t stop rising.
But I want to know if it will. Yes, it’s seen an awesome performance lately. But will this continue in 2024? I’m eager to find out. If so, maybe it’s time I stopped ignoring the British manufacturer and added it to my portfolio.
The bear case
Let’s get the bad news over and done with before we look at the positives. I’m worried that investors have got ahead of themselves.
Rolls-Royce has shown glimmers of hope in the last 18 months or so. The business has recovered well from its pandemic lows. But is a 200% jump in the share price really justified? I’m not sure. In the short term, large share price movements can be heavily swayed by investor sentiment. Over the long run, stocks tend to align with a business’s performance and fundamentals. I don’t want to buy into the hype today only to look back at the end of 2024 and see my investment dwindling.
To add further fuel to the fire, Rolls-Royce operates in a volatile industry. It relies heavily on the aviation industry running at full efficiency. With ongoing geopolitical tensions between Russia and Ukraine, as well as conflict in the Middle East, this could impact the firm.
The bull case
Nevertheless, there are plenty of reasons to justify the stock’s magnificent performance.
Under current CEO Tufan Erginbilgiç, it seems Rolls may be turning a corner. The former BP executive has some ambitious targets for the firm, including quadrupling profits to £2.5bn by 2027. By raising around £1.5bn in sales via selling off fringe businesses, he also plans to make a dent in the firm’s £3bn pile of debt.
Describing the business as a “burning platform” when he took over, it’s evident he’s determined to turn its fortunes around. Its expected that 2023 results will come in some way ahead of 2022’s, so he’s made a strong start.
Rolls generates nearly half of its revenues from the aviation sector. And while the industry can be volatile at times, its predicted to experience major growth over the next two decades. A rise in demand as the global middle class continues to expand will no doubt benefit the firm. Airbus has projected a need for over 40,000 aircraft by 2042. That’s a huge new demand that Rolls can capitalise on.
For us income investors, talks of its dividend being reinstated is also positive news. This year, it’s expected to reach 0.58%.
My move
I’m a fan of Rolls-Royce. But I can’t bring myself to buy the stock today. I’m too worried we could see a market correction at any moment.
Its share price has dipped slightly in the opening period of 2024. If it continues to do so, I’ll reassess my stance and strongly consider opening a position. Until then, I’m holding off.
