Yahoo Finance 3 reasons the Rolls-Royce share price might crash
Been watching the Rolls-Royce Holdings (LSE: RR.) share price climb and climb, waiting for a crash? Me too.
But for the sake of Rolls-Royce shareholders, I’m glad I’ve been wrong… so far, at least.
Still, looking at the share price chart, that 450%+ rise of the past two years does make me nervous. And that’s even when I don’t own the shares.
Interest rates
It might sound strange to suggest that cuts in interest rates could send the Rolls-Royce share price down. But I think it could happen, even if it’s only an indirect trigger.
Cuts could make a lot of today’s FTSE 100 dividend stocks look cheap. Well, they look cheap to me already — some of them dirt cheap.
But high interest rates make returns from cash (in a Cash ISA, for example) and bonds look good. And for investors who want to keep their risk down, that can make a lot of sense.
I can see a lot of that cash moving to dividend stocks once rates reverse though. And we might see cash moved from higher-risk growth stocks to income shares if they start to rise.
Earnings miss
Forecasts look good for Roll-Royce earnings and, so far, it hasn’t disappointed.
In its most recent trading update, Rolls told us that things are going well. The firm said: “Our full year 2024 guidance is unchanged, with a broadly balanced weighting for both profit and cash flow across the year“.
Forecasts show earnings per share (EPS) resetting this year, and then growing. Analysts predict a 20% climb in 2025, and another 17% the next year. There are targets for all sorts of other measures too.
They might all be reasonable for a resurging Rolls-Royce. But what happens if the figures don’t quite meet one of these? Or Rolls lowers its quidance some time? By even a little bit?
For growth stock investors, that’s often time to go look for the next big thing.
Next big thing
Talking of that, the world seems to be going mad for artificial intelligence (AI) stocks, even anything remotely connected.
Nvidia‘s surged to a $3trn valuation, briefly becoming the world’s most valuable company. It’s up nearly 3,000% in five years.
Here in the UK, our very own Raspberry Pi Holdings is off to a decent start since IPO, around 40% up on its initial offer price. That holds promise for the AI and robotics world. It’s early days, but I give it a good chance of turning into the next big UK growth stock.
Dump Rolls-Royce?
Now, none of these things might upset the Rolls-Royce share price. Or maybe one or two of them could cause a slight wobble — like I thought profit-taking was set to do in early 2024.
The Rolls-Royce stock valuation does looks a bit high, with a price-to-earnings (P/E) ratio of 31. But it could drop to 22 on 2026 forecasts. That might be just fine.
And the Rolls-Royce share price train might keep powering along.
The post 3 reasons the Rolls-Royce share price might crash appeared first on The Motley Fool UK.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Nvidia 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.
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