Is an £11 share price a sign to sell my Rolls-Royce shares?

The rise of the Rolls-Royce (LSE: RR) share price almost beggars belief. The shares sank to 28p during the Trussonomics mini-budget; now they’re inching towards £11. The market value of the company was below £3bn at that low point. It’s now £91bn. 

If the surge continues then Rolls-Royce could be the largest company on the London Stock Exchange, bigger than giants like Shell, AstraZeneca, HSBC and Unilever. That can’t happen, can it? Surely the bull run has to end soon? Is it time to sell my Rolls-Royce shares?

Future arrivals

Here’s my simple answer: no, I’m not selling. No way. No how. 

To explain the primary reason why, I’ll draw some comparisons between Rolls-Royce today and Nvidia a few years ago. 

Before the ridiculous boom in Nvidia’s share price, the company sold computer chips mostly used to make video game graphics prettier. It served a niche market and served it well. When demand for these chips exploded thanks to Bitcoin and later artificial intelligence, the share price enjoyed its own explosion. 

The point being that Nvidia had the technology and the expertise to become the number one player in these nascent industries. 

Where Rolls-Royce enters the equation is with the possible future arrival of SMRs — small modular reactors. 

An SMR is essentially a micro-nuclear power plant. It’s small, cheap(ish), reproducible, not that burdensome to make and, most importantly, can plug the gaps when solar or wind energy have those annoying little bits of downtime. With a cavalcade of companies hoping to win the SMR race, notably including a Bill Gates-funded enterprise TerraPower, these little power plants could be the magic ingredient to a rosy Net Zero future. 

Rolls-Royce isn’t guaranteed to win, but it has been making nuclear reactors for Royal Navy submarines since the 1950s. It might just have the technology and expertise to be the Nvidia of SMRs.

In theory

If Rolls-Royce does continue its meteoric rise with the help of SMRs, it’s some ways off yet. While a few promising contracts have been signed, notably being the winning bidder for the newly formed Great British Energy, the first SMRs won’t be on-line until the 2030s. Given the glacial pace of building anything in this country, these nuclear power generators might be operational closer to 2040 than to 2030. They might not even see action at all!

This potential catalyst is no secret either; a forward price-to-earnings (P/E) ratio of 36 suggests future growth is priced in. Should SMRs turn out to be the green energy panacea that they are in theory, Rolls-Royce might be in for a few lean years. On balance though, I think Rolls-Royce stock is one any investor should consider adding to their portfolio.

The post Is an £11 share price a sign to sell my Rolls-Royce shares? appeared first on The Motley Fool UK.

More reading

• Is there still value for investors in the Rolls-Royce share price?
• Forecast: see what £10,000 invested in Rolls-Royce shares could be worth in a year
• 2 reasons why Rolls-Royce shares could take off!
• 3 reasons I don’t own Rolls-Royce shares
• Why is everyone talking about Rolls-Royce shares?

HSBC Holdings is an advertising partner of Motley Fool Money. John Fieldsend has positions in Rolls-Royce Plc. The Motley Fool UK has recommended AstraZeneca Plc, HSBC Holdings, Nvidia, Rolls-Royce Plc, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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