The most effective-performing share within the FTSE 100 in 2023 was Rolls-Royce (LSE: RR). Final 12 months it was among the many highest climbers once more. In truth, the Rolls-Royce share price is now 513% larger than the place it was on the finish of 2022.

That’s an unimaginable efficiency for any share.

However I believe it’s significantly spectacular for a mature firm that has been round for a lot of, many a long time and operates in a sometimes slow-moving enterprise space.

Previous efficiency is just not essentially a information to what’s going to occur in future. However would possibly the Rolls-Royce share price have a bumper 2025 – and ought I so as to add it to my portfolio?

Heaps going proper

The previous couple of years have seen the share price surge partially due to a modified enterprise outlook.

Demand has grown, each within the civil aviation enterprise and with an upswing in defence spending by many western governments. In the meantime, Rolls has shaken off its weak efficiency and big money burn of the pandemic years.

However what I believe actually set the share on hearth up to now couple of years was a brand new, extra assertive administration model. That has included eliminating some non-core companies, aiming to chop prices and setting bold targets for medium-term monetary efficiency.

It doesn’t appear like a cut price

The targets are certainly spectacular – if they’re delivered. For now, nonetheless, I believe the Rolls-Royce share price already components in excessive expectations.

In the meanwhile, it trades on a price-to-earnings (P/E) ratio of 21. That’s not outrageously excessive, for my part, however by the identical token I’d not describe it as a cut price.

It may very well be seen as a cut price on the idea that the potential P/E ratio is decrease. In spite of everything, if the corporate can enhance its profitability because it hopes to, earnings per share ought to extend.

That prospect alone may see the Rolls-Royce share price improve this 12 months, particularly if the corporate points upbeat information about how it’s performing relative to its medium-term objectives.

Why I’m not tempted at this price

The reverse can also be true although.

If there’s even a squeak of disappointment – and Rolls has a long time of blended efficiency behind it – I believe the present share price presents me no margin of security. In such a state of affairs, I’d not be shocked to see a pointy price fall.

An especial concern I’ve about this business, together with Rolls, is that civil aviation demand may be affected by components over which airways not to mention engine makers haven’t any management. That may very well be a pandemic, volcanic eruption, terrorist assault, oil price spike or just a pointy recession.

Once more, I believe the present Rolls-Royce share price presents me no margin of security to mitigate such dangers. So, whereas I’ll watch with curiosity the way it performs in 2025, I’ve no plans to take a position.