Down 70%, is this former FTSE 100 name set to explode like the Rolls-Royce share price?
The Rolls-Royce (LSE: RR) share price has risen by more than 550% over the last two years. That makes it the top performer in the FTSE 100 over that period, and by a big margin.
At £45bn, Rolls’ market-cap is now more than triple the £13bn valuation held by the company in November 2019, ahead of the pandemic.
It’s an impressive turnaround for the business, no doubt. But I can’t help wondering whether most of the good news is now priced into the shares.
A mixed outlook?
Admittedly, Rolls-Royce did upgrade its 2024 guidance (again) when its half-year results were published in August. In my experience, that’s a sign growth could continue to beat expectations.
However, CEO Tufan Erginbilgiç also warned of a “challenging supply chain environment”. I see that British Airways (owned by IAG) recently warned of hundreds of flight cancellations due to delayed deliveries of Rolls-Royce engines.
Production problems and industrial action at Boeing may not be ideal for Rolls-Royce either. I wonder if engine shipments for new aircraft could be held back by these issues.
Looking further ahead, I’m excited by the company’s plans to develop a fleet of small modular nuclear reactors. In my view, nuclear power needs to be a big part of the net zero transition.
I think Rolls’ scale and deep engineering expertise gives the firm a fighting chance of being one of the winners in the nuclear market.
On balance, I reckon Rolls-Royce has an interesting future and could be worth more on a long-term view. But I’m not convinced the shares will keep travelling in a straight line.
With the stock now trading on 30 times 2024 forecast earnings and offering a dividend yield of just 1%, I suspect that any disappointment could trigger a sharp selloff.
Personally, I’m looking elsewhere for opportunities – including some of the stocks that are already in my share portfolio.
A fashionable recovery?
One company I own whose shares have performed very badly is upmarket British fashion house Burberry Group (LSE: BRBY).
At 790p, Burberry’s share price has now fallen by 70% from a record high of more than 2,600p in April 2023.
As an investment writer I reckon it’s only right to own up to my mistakes. So far, Burberry’s been a big fail for me.
I originally thought I’d bought the shares well, with an average purchase price of just over 1,500p. I even averaged down when the shares hit 1,000p earlier this year.
However, I didn’t reckon with the scale of the slowdown in luxury sales. Burberry’s sales fell by 20% during the 13 weeks to 29 June. That’s a dire result for any business.
The company’s seen a sharp fall in sales globally and expects to report a loss for the first half of the year.
The big question for me now is how much of Burberry’s current slump is due to the company’s mistakes – and how much is due to a wider change in luxury demand.
With a new chief executive on board, I’m hoping to get some straight answers with this month’s half-year results. I’ll review my position then.
I’m optimistic this 168-year-old business can deliver a recovery of some kind. But right now, I don’t know whether Burberry’s share price can explode like Rolls-Royce’s.
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More reading
- No savings at 50? The Warren Buffett method could help change that!
- At 538p, is the Rolls-Royce share price really that expensive?
- 1 FTSE 250 share that can soar like the Rolls-Royce share price
- Down 45% in 2024, is the Burberry share price worth backing for 2025?
- Rolls-Royce shares hit new highs in October. What next?
Roland Head has positions in Burberry Group Plc. The Motley Fool UK has recommended Burberry Group Plc and Rolls-Royce Plc. 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.
