Rolls-Royce shares look toppy to me

Since the end of September, Rolls-Royce Holdings (LSE: RR.) Shares are on a tear. The stock price has risen more than 70% since its low in 2022. But after such a steep rise, is the stock now overpriced?

Rolls-Royce shows a slump

When I consider stock valuations, I always look back through the share prices to see the history. After all, as one merchant in London once said to me, “The only action is price action.” In other words, the price you pay for an asset is what matters most when you buy it.

For Rolls-Royce shares, the share price over the past five years has been extremely difficult. For example, on 3 August 2018 – 20 months before the coronavirus crashed the stock market – this popular stock closed above 375p. Since then, prices have fallen dramatically, falling to levels not seen since the depths of the 2000/03 market crash.

Here’s how Rolls-Royce’s share price has fared over various time periods, based on Friday’s close of 110.2p.

The stock is set to rise more than sixfold by 2023, boosting the prominent engineering group’s market value to £9.2bn. However, although the share price has risen by more than a quarter in six months, it has lost almost 5% in the past year. Even worse, it dropped by almost two-thirds in five years.

Too far, too fast?

At a 52-week low on September 28, Rolls-Royce’s share price fell to an intra-day low of 64.44p. With the current price at 110.2p, the stock has skyrocketed more than seven-tenths (71%) from rock-bottom.

That’s a fantastic return. Really, I’m kicking myself if I didn’t buy this stock when I saw it crash below 70p. But are stocks rising too much, too fast? Does it really take four months for Rolls-Royce to justify a huge jump in value?

Stand on the burning platform

On the one hand, one is looking for an engineer. For example, orders for long-haul flights are on the rise again, which will help increase the engine profit per mile of the civil aerospace division. In addition, passenger numbers are heading towards pre-pandemic levels, which is good news for a group that makes huge profits from civil aviation.

The war in Ukraine has boosted the company’s defense division, with profits rising by more than three-tenths (31%) of the total. In addition, the power systems division also won new contracts in the UK and Europe.

However, the group is carrying a huge debt burden – its net debt is £5.1bn by mid-2022. And on Thursday, the new CEO of Rolls-Royce warned employees that the company is “burning platform“and the performance is”unsustainable“. Yawis.

I wouldn’t buy Rolls-Royce shares now

The new CEO then talks about restructuring, radical transformation, efficiency, and optimization – code words for other pieces of work, I feel. Frankly, this bleak and brutal view hardly motivates workers to listen in Derby and elsewhere.

Summing up, Rolls-Royce faces heavy headwinds on the long road to recovery. And with shares up over 70% from low, they look very pricey to me. So I will pass on this price – for now, at least!