At a number of factors previously few years, investing in Rolls-Royce (LSE: RR) was an impressive discount, seen from right this moment’s perspective. The Rolls-Royce share price is now north of £8, so might it nonetheless probably be a discount for my portfolio?

Again in 2022, it bought for pennies – a price that now appears to be like like a screaming discount!

In 2023, it was the most effective performing of any FTSE 100 share. But, for a lot of the yr, the Rolls-Royce share price was beneath £2. What a deal!

Having completed so nicely in 2023, it’d stand to purpose that the share was not such a discount in 2024. Actually, it was one of many best-performing FTSE 100 shares final yr. However even since September, it has risen 75% — and shareholders have had the extra excellent news that the dividend can be reinstated. Once more, a large discount!

What about this yr, to this point? The Rolls-Royce share price has risen 38% because the flip of the yr. Wow!

The valuation appears to be like excessive to me

Usually when deciding whether or not to purchase a share, I first contemplate its enterprise and industrial prospects and provided that I like them do I then get into the nitty gritty of valuation.

Right here, although, we will go straight to valuation. The present Rolls-Royce share price-to-earnings ratio of 27 instantly raises my hackles as an investor.

This isn’t some sparkly new startup with a transformational enterprise mannequin. It’s a agency established 5 years after Queen Victoria died, working in a collection of mature industries and with an extended historical past of chequered monetary efficiency because of the lengthy improvement timeframes and excessive prices which are nonetheless a structural a part of the plane engine {industry}.

May there be hidden worth right here?

So, from the valuation alone, I’m already sceptical.

Going again to the enterprise, am I lacking one thing that would probably justify the present Rolls-Royce share price – and maybe the next one in future?

A variety of the advance has been pushed by industry-wide constructive information, elevated by a extremely centered and impressive administration at Rolls. The corporate has already reached a few of its bold targets a number of years forward of schedule.

It has set extra bold medium-term targets and continues to profit from a useful promoting setting, with civil aviation demand sturdy, defence spending rising strongly, and renewed consideration being paid to energy programs.

As an engine maker, Rolls is aware of all about tailwinds – and it appears to be like prefer it has been in the best place on the proper time. I reckon the share could possibly be a discount even now if every little thing retains going in addition to it has been these days.

I’m not snug with the dangers

Equally, although, Rolls understands headwinds – and I see some that would harm its efficiency.

Civil aviation demand is already exhibiting indicators of weakening in some key markets. An financial downturn might exacerbate that, posing a danger to gross sales volumes and revenue margins.

In the meantime, civil aviation as all the time stays uncovered to the chance of a sudden demand  downturn that comes virtually from nowhere, whether or not as a consequence of a terrorist occasion, struggle, climate occasion, or recession.

I believe the present Rolls-Royce share price presents me inadequate margin of security to mitigate such dangers, so I cannot be investing.