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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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