The previous 12 months has seen Rolls-Royce (LSE: RR) carry out spectacularly. In simply 12 months, the Rolls-Royce share price has soared 77%. If it achieves the identical development within the subsequent 12 months, the share will break the £13 barrier.

Previous efficiency is not any information to what to anticipate subsequent within the inventory market, in fact. However it’s value noting that the latest efficiency of the Rolls-Royce share price just isn’t a one-off. It was the strongest performer amongst any FTSE 100 share in 2023 – and among the many greatest performers in 2024.

That gorgeous rebound after promoting for pennies apiece in 2022 displays an improved enterprise efficiency alongside formidable medium-term targets.

If issues proceed going effectively, then, may the identical elements preserve pushing the Rolls-Royce share price up over the following 12 months? If that’s the case, ought to I make investments now?

Good alternatives but in addition vital dangers

Clearly, present administration has step-changed efficiency on the firm.

If that continues, for instance with a eager concentrate on prices and likewise on the profitability of latest enterprise wins, it might be good for revenues and particularly earnings.

The corporate can be working in an atmosphere that at the moment performs to its strengths.

Civil aviation demand has boomed in recent times, translating to extra airways shopping for engines in addition to servicing current ones. On prime of that, a number of European governments have introduced plans to ratchet up defence spending in a approach not many would have anticipated just some years in the past.

However whereas there are causes to be optimistic in regards to the outlook for Rolls, I additionally see a number of grounds for warning as an investor.

The present chief govt has probably now wrung the simple financial savings out of the enterprise. It might develop into tougher work to chop prices as time goes by.

In the meantime, a number of US airways have lately reported weaker passenger demand in some areas, which might sign that the latest growth years for civil aviation are winding down.

On prime of that, one perennial threat that faces civil aviation is an occasion that all of a sudden hurts demand. The latest Heathrow closure was a reminder of that. Extra sustained downturns can have dramatic impression, as seen throughout the pandemic – however engine makers like Rolls don’t have any management over them.

The share already appears expensive

Given all of that, I don’t discover the present Rolls-Royce share price-to-earnings ratio of 25 engaging.

The truth is, to me it appears expensive and for that cause I’m not planning to purchase the shares.

I recognise that the corporate’s formidable medium-term targets imply that the possible valuation could also be extra engaging if earnings per share develop. However targets are one factor – there isn’t any assure that the corporate will be capable to obtain them.

I believe the expectation of delivering is already constructed into the price. So, within the subsequent 12 months, except there may be excellent information about its enterprise efficiency, I see no cause for Rolls-Royce to attain a a lot larger valuation ratio, as it could have to for the share price to hit £13.