Does it make sense for me to buy Rolls-Royce shares near 52-week highs?

Last month, the stock in Rolls-Royce (LSE:RR) hit a 52-week high at 160p. Although the stock has retreated modestly, it is still close to that price.

It marks an impressive gain of 57% over the past three months, with Rolls-Royce showing a rise of 31% over the past year. But if I’ve missed this jump, is it worth buying the stock now?

Cases to buy now

It is human behavior not to buy stocks that increase in value. This is the same trait that makes us want to buy things (stocks, food, clothes) when the price goes down. We all love a deal!

But for investors like me, a higher move in the stock price does not mean that the stock is always overvalued. In fact, even at 160p, it looks relatively cheap when I note that five years ago it cost 300p.

Of course, times have changed and business is different today. But it highlights that there is a major difference between an inflated price and an overvalued price.

Apart from the price, the fundamentals of the business look good going forward. The annual report shows better figures in terms of revenue, debt levels and, importantly, profits. Under the new leader Tufan Erginbilgic, the wind of fortune certainly seems to have shifted.

As for 2023, a large improvement in free cash flow should allow the business to operate more efficiently. As demand for international travel continues to return, the Civil Aerospace division should also generate higher profits.

Can I stay away

One factor that weighs in my mind is that the stock price correctly reflects all public information. The annual report has been fully digested. Although positive, I think this can be reflected in stocks. In other words, investors are already expecting good things from Rolls-Royce.

So if the business only performs as expected, or even slightly underperforms, there may be very little for the stock to move higher later this year. The bar is now set high, and it will likely take some spectacular news to push it further.

Another point I made last month is that even though my net debt is decreasing, I’m struggling to see how I can cut it back. The reduction from £5.1bn to £3.3bn was mainly due to cash from the sale of group businesses.

The company does not have the same assets to sell, so it must use retained earnings to reduce this. As a general rule, this will take some time.

My overall take

The jump to the 52-week high is a positive, especially for investors who bought when things looked uncertain last year. However, I’m struggling to find enough reasons to justify the current investment. For the moment, I will continue to cash and see how the stock moves over the next month.