Rolls-Royce share price, Digi Mart USA News: Rolls-Royce (LSE: RR) shares sold for pennies in 2022 but now trade at close to £13. Over the past five years the share price has risen by 803%, roughly 17 times the 46% gain recorded by the wider FTSE 100 index over the same period.
From current levels, the shares would need to rise by 93% to reach £25. The author, who says he is a long-term investor willing to hold for years or even decades, quotes Warren Buffett’s view that investors should think about owning a stock for ten years rather than ten minutes.
Over a ten-year horizon, a 93% gain does not seem too far-fetched to the author, given the company’s strong recent financial performance and its ambitious goals. He notes that Rolls-Royce is benefiting from positive demand not only in civil aviation but also in defence and power systems, and he expects demand in defence and power systems to remain robust in coming years.
In the short term, however, the author is more cautious. Rolls-Royce shares are already 18% below their 12-month high, which was also an all-time high, suggesting investors may have cooled somewhat.
The demand outlook for civil aviation now looks less promising than a year ago. Higher jet fuel prices feeding through to ticket prices, which International Consolidated Airlines Group, owner of British Airways, expects next year, could hurt passenger demand and may lead airlines to order fewer new engines.
The shares trade at 36 times earnings, a demanding valuation that the author believes requires Rolls-Royce to keep delivering without a major setback. He says the company has managed this in recent years.
He suggests that reaching a 93% gain, even over many years, would likely require one or more specific catalysts, such as continued delivery against demanding financial targets, a surge in customer demand for modular nuclear reactors, or the successful marketing of a new aircraft engine type.
The author says he does not expect such a catalyst in the short term and would be surprised if the share price reached £25 soon. Over the long term he considers it possible, but believes the current share price does not fully reflect risks such as a potential downturn in civil aviation.
For that reason, he says he is looking elsewhere in the market rather than buying Rolls-Royce shares.
