Rolls Royce Stock A Buy Or No

last updated on

Rolls Royce Stock A Buy Or No

Rolls-Royce Stock Gained 1,260% In 5 Years. Is It A Buy?

Rolls-Royce has been a spectacular success story from the FTSE 100. In the last 5 years, the stock price has gone up by 1260%. Returns of this magnitude may be normal in penny shares, but they are unheard of in blue-chip stocks like Rolls-Royce.

But can the Rolls-Royce stock still gain more upside? Or has the time come to sell the stock? According to experts, the Rolls-Royce stock has started to show signs of cracks.

Rolls-Royce Has Market Cap of 125 Billion

The market cap of Rolls-Royce is now hovering near 125 billion. This puts the company in the top 5 of the FTSE 100. Back in 2021, the company's market cap was below 10 billion.

Rolls-Royce has also done a great job with its earnings growth. It has developed a steady cash flow and has managed to stay consistently profitable. However, analysts think the EPS from 2025 will be a one-time event. The company may not see the same EPS till 2028.

The Rolls-Royce stock is also trading at a forecast P/E of 35. This clearly shows that Rolls-Royce is now trading in the expensive range. The long-term average P/E of the FTSE 100 is around 15.

Another risk factor for Rolls-Royce is that it continues to beat the forecasts. This may sound good on paper, but it has set the expectations really high for Rolls-Royce.Now, if Rolls-Royce misses these forecasts by even a tiny margin, it would lead to some serious downside in the stock price.

With all things considered, it is clear that Rolls-Royce investors must stay cautious. A better approach is to book the profits or at least partial profits.

But if we look at the brokers, around 16 out of 20 still rate Rolls-Royce a buy. They have set an average price target of 1718p for Rolls-Royce. This means an upside of almost 15%.

So, if you want to follow the recommendation from brokers, then you can still buy Rolls-Royce stock. But if you want to look at the valuation and want to avoid risk, then sell the Rolls-Royce stock and avoid taking new positions at the current price.

Trending Stories