Rolls-Royce Share Price: Can It Reach £20 in the Next Decade?
The Rolls-Royce share price has experienced a remarkable surge in recent years, rising from pennies to over £8. Some investors are now eyeing the possibility of it reaching £10, but one long-term investor is considering an even bigger prize: £20. According to an analysis by The Motley Fool, a £20 share price would require a 133% rise, which seems achievable given the company’s stunning performance in recent years.
The Motley Fool notes that the Rolls-Royce share price has already risen 820% in five years, making a 133% increase seem modest by comparison. However, a £20 share price would imply a market capitalisation of around £169bn, making Rolls-Royce the most valuable company on the FTSE 100. As The Motley Fool points out, “That market-cap would, by today’s standards, make Rolls-Royce the most valuable company on the FTSE 100. Currently, that spot is held by AstraZeneca with its £161bn market-cap.”
The Motley Fool analysis raises concerns about the valuation of Rolls-Royce, which currently trades on a share price-to-earnings (P/E) ratio of 29. This is in line with fellow UK defence contractor BAE Systems, but The Motley Fool notes that “without earnings growth, a £20 share price would imply an even more dizzying P/E ratio of 68. That seems ridiculous to me for a mature company in a mature industry.” However, Rolls-Royce has set out ambitious financial targets, including a medium-term target of £3.6bn-£3.9bn in annual underlying operating profit.
The Motley Fool analysis also highlights the risks facing Rolls-Royce, including a weak economy, reduced demand for civil aviation, and elevated defence spending in Europe. As The Motley Fool notes, “I do not think those risks are properly priced in, even at today’s Rolls-Royce share price, let alone a higher one.” Despite the potential for growth, The Motley Fool concludes that it will not be investing in Rolls-Royce at this time.
The Rolls-Royce share price has been on a remarkable journey in recent years, driven by the company’s improving financial performance and ambitious targets. However, as The Motley Fool analysis highlights, there are risks and uncertainties facing the company, and investors must carefully consider these factors before making a decision.
In conclusion, while a £20 share price for Rolls-Royce is theoretically possible, it would require significant earnings growth and a re-rating of the company’s valuation. As The Motley Fool notes, “It is possible, but seems odd to me. The bedrock of investors’ confidence in Rolls’ business does not seem that deep when stepping back and looking at the longer-term picture, including five years ago.” Investors must carefully consider the risks and opportunities facing Rolls-Royce before making a decision.
The Motley Fool’s analysis provides a detailed and balanced view of the potential for the Rolls-Royce share price to reach £20 in the next decade. While the company’s financial targets and recent performance are encouraging, there are risks and uncertainties that must be carefully considered. As The Motley Fool concludes, “I will not be investing” in Rolls-Royce at this time, highlighting the importance of caution and careful consideration when making investment decisions.
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