The Rolls-Royce (LSE: RR) share worth has been on a tear. Within the final 12 months, it has skyrocketed an impressive 178.7%.

This 12 months alone it has been one of many FTSE 100’s prime performers, rising 37.6%. Even so, I nonetheless don’t plan on shopping for any shares at the moment.

Which will sound odd, particularly contemplating the truth that I just like the look of the enterprise. However there are a number of causes I’m holding off for the second.

Let’s take a step again

First the apparent motive. Proper now, the inventory is just too costly for my liking. It trades on 28.3 instances earnings. That’s greater than double the FTSE 100 common. I’m cautious that its lofty valuation might provoke a worth correction.

Its share worth development has been spectacular to witness. However I’m apprehensive the market is getting overexcited and that the rise isn’t sustainable.

Within the quick run, market hype can dictate a inventory’s motion. Nevertheless, I’m extra targeted on long-term efficiency drivers.

It’s the identical feeling I’ve with shares like Nvidia. Whereas I’m bullish on the outlook of the enterprise within the years to come back, there’s the fear that retail traders are getting forward of themselves and pushing the inventory too excessive. Everyone knows how that may finish.

A enterprise I like

That stated, I do like the place Rolls is heading. It’s made a powerful comeback from its pandemic woes. At one level, it appeared like chapter may need been on the playing cards.

These days although, it’s again to its high-flying self. Final 12 months it turned an underlying working revenue of £1.6bn, a 144% enhance from the £652m it posted in 2022. Free money move additionally shot up 155% to £1.3bn.

For this 12 months, it expects income to take a seat someplace between £1.7bn and £2bn. CEO Tufan Erginbilgic has publicly mentioned the agency’s plans for that determine to rise to £2.8bn.

In all equity, it appears doable. Particularly if Rolls retains up the momentum that its gained underneath Erginbilgic via his aggressive turnaround technique.

Demand for journey continues to soar and it will profit Rolls. It means airways are speeding to purchase new plane. On prime of that, it’s additionally predicted flying hours will exceed 2019 ranges by between 20% and 30% over the following few years. With extra planes within the sky translating to more cash for the enterprise, that may supply a giant enhance.  

What’s extra, its defence unit also needs to be supplied with an uplift as spending throughout the globe rises. For instance, the UK introduced in February that its defence business spending topped £25bn for the primary time ever.

On the sidelines

Even so, whereas Rolls has posted robust development, it is going to be extremely troublesome to maintain it shifting ahead.

I’m ready on the sidelines in the intervening time. However I’m watching the Rolls-Royce share worth like a hawk.

I gained’t be drawn into the market hype. As an alternative, if Rolls pulls again to what I consider to be a extra wise worth, then I’ll make a transfer.