Image source: Getty Images <\/p>\n
On 9 January, Rolls-Royce (LSE: RR.) shares hit a new all-time high around 1,290p. Today however, the shares are still around 1,290p, meaning they\u2019ve essentially been dead money for five months.<\/p>\n
This begs the question \u2013 what\u2019s going to kick-start the Rolls-Royce share price and get it moving higher again?<\/p>\n
A healthy pause? <\/p>\n
I\u2019m not really surprised that Rolls-Royce shares are experiencing a period of \u2018consolidation\u2019 at the moment. Because the shares have had a massive run in recent years (rising more than 1,500%) and now trade at a lofty valuation (the price-to-earnings (P\/E) ratio is 35).<\/p>\n
Usually, at some stage, a high-flying stock will pause for breath and trade sideways for a while. This allows gains to be digested by investors and the company to grow into its valuation. This it can set the stock up for its next move higher.<\/p>\n
What will send the share price higher? <\/p>\n
In terms of catalysts that could propel the Rolls-Royce share price out of its current trading range, I see a few potential scenarios that could do it:<\/p>\n
A drop in oil prices: high oil prices are resulting in airlines cancelling flights, which isn\u2019t good news for Rolls-Royce as it generates revenues from aircraft engines being serviced. So lower prices would be a positive here.<\/p>\n
Better-than-expected H1 results: if Rolls-Royce\u2019s H1 results, scheduled for 30 July, are better than expected and\/or the company raises its profit guidance, the shares could see a pop.<\/p>\n
Bullish broker activity: there are a number of brokers who rate the shares as a Hold at present. If one or more of these firms were to upgrade them to a Buy rating and raise their price targets significantly, it could boost the stock (note that Berenberg just did this on 12 June).<\/p>\n
Alternative scenarios <\/p>\n
Of course, there are no guarantees that any of these scenarios will play out. There\u2019s a possibility that the shares could continue trading sideways for months or even years. Because, as I noted above, they do look expensive at the moment. The stock may need more time to grow into its lofty P\/E ratio.<\/p>\n
Investors also need to consider the possibility of share price weakness from here. We could see this if oil prices spiked or if H1 results were disappointing.<\/p>\n
At a P\/E ratio of 35, there really isn\u2019t much room for error here. If we get some bad news, the stock could easily fall 10% or 20% in the blink of an eye, given its valuation.<\/p>\n
I\u2019m not a buyer today <\/p>\n
Given the lofty valuation today, I\u2019m not a buyer of the shares right now. I just think that gains could be limited from here in the medium term.<\/p>\n
If the stock was to experience a decent pullback however (to say 1,000p), it could be a different story. At that price level, I may be interested in snapping it up for my portfolio.<\/p>\n","protected":false},"excerpt":{"rendered":"Image source: Getty Images On 9 January, Rolls-Royce (LSE: RR.) shares hit a new all-time high around 1,290p.…\n","protected":false},"author":2,"featured_media":62651,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[20731],"tags":[30070,1238,20767,5692,3702],"class_list":["post-62650","post","type-post","status-publish","format-standard","has-post-thumbnail","category-rolls-royce","tag-dead-money","tag-rolls-royce","tag-rolls-royce-plc","tag-share-price","tag-shares"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@UnitedKingdom\/116747922566994120","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/62650","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/comments?post=62650"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/62650\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media\/62651"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media?parent=62650"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/categories?post=62650"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/tags?post=62650"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}