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It seems like such a short time ago that Rolls-Royce Holdings (LSE: RR.) Shares were well below the pound.
They are currently hovering around the £2 level, at 210p at the time of writing. Did I miss the opportunity to buy when they were cheap? And, more importantly, should you buy it now?
look to the future
Well, first of all, I clearly missed the opportunity to make a quick profit. If I had bought Rolls-Royce shares a year ago, I would have tripled my money by now.
But I’m not going to beat myself up about it.
We will always miss opportunities. There are so many options and so many uncertainties out there. And few of us have enough cash to buy everything we want.
That is why we must put aside the regrets of the past and look to the future. The past, as they say, is not a good guide to the future.
What to do now?
What counts now is the current valuation of Rolls shares.
Because that’s what it’s all about, with any action: valuation. Never mind the stock price chart and forget about thinking about timing the next big jump. The evaluation is what counts.
Looking at valuation score, how is Rolls-Royce stock?
Broker forecasts appear optimistic and there is a general “buy” consensus. But most of their price targets… well, they’re around the current price, or not much higher.
Valuation
Strong forecast earnings growth would reduce the price-to-earnings (P/E) ratio to around 16.5 by 2025; by 2023, it will increase to around 30.
Is that a fair assessment? Well, I think it could be. But then, it’s far from an obvious ‘buy me now’ valuation.
Still, billionaire investor Warren Buffett has emphasized that “It is much better to buy a wonderful company at a fair price than a fair company at a wonderful price.“.
And I think that could apply to Rolls-Royce.
Cheaper stocks
Taken in isolation, you could buy Rolls-Royce now, to hold on to it for at least 10 years. And I think I’d probably do pretty well with that.
But a stock purchase is never done in isolation.
At the moment, I see many more shares on the London Stock Exchange that I rate as good value than I could afford to buy. If I had the cash, I think I could fill the equivalent of 10 ISAs with UK shares, and still have to leave out some desirable ones.
And dare I suggest that there are even some wonderful companies at wonderful prices?
I’ll buy?
So, in summary, will I buy Rolls-Royce shares at just over £2 today? The answer is no.
That’s not because I don’t think it’s a great company with a great future. I think exactly that.
No, the reason I won’t buy now is that I like the stock, but I think most of the potential is already in the share price. I hope to be able to buy at a more attractive valuation in the future.
