Similar to the 12 months that preceded it, 2024 was a classic yr for Rolls-Royce (LSE: RR). Whereas Rolls-Royce shares weren’t the perfect performer within the FTSE 100 index, as they’d been the prior yr, they had been nonetheless on rip-roaring kind.

Over the previous yr, the aeronautical engineer’s share price has soared 94%.

Trying over 5 years, the corporate’s pandemic-era existential disaster now appears a very long time in the past. Rolls now stands 165% increased than it did at the moment in January 2020. That was earlier than the pandemic began to make the Metropolis nervous.

So, having nearly doubled over the previous yr, might the Rolls-Royce share price do the identical once more within the coming 12 months? Or may it halve, taking it again near the place it stood a yr in the past?

The doubling situation

At first look, the prospect of the share doubling appears far-fetched. In any case, it is a mature firm in a mature business that has already soared over the previous couple of years. I, for one, could be shocked to see this occur within the coming yr, though that does imply it can’t.

Nevertheless, there’s a case to be made for this situation.

The present price-to-earnings (P/E) ratio is 22. That doesn’t strike me as low cost. Then once more, it’s considerably cheaper than different engine makers akin to New York-listed friends GE Aerospace (sitting at 33) or Pratt and Whitney proprietor RTX (36).

A part of that disparity might be defined by the commonly decrease valuations within the London market at present, in comparison with US friends. Nonetheless, Rolls might transfer up considerably (although not double) with out being dearer on a price-to-earnings foundation than key rivals.

There’s one other doable lever for a giant leg up within the Rolls-Royce share price and that’s improved earnings.

In that case, even sustaining right this moment’s P/E ratio, not to mention the next one, would indicate the next price. Each primary and underlying earnings per share confirmed a marked bounce in 2023 in comparison with the prior yr.

Final yr’s annual outcomes ought to come out subsequent month. They may embrace particulars on how the engineer is progressing towards its formidable medium-term monetary targets.

If the corporate delivers robust additional enhancements in earnings, I believe that might assist propel the shares increased.

The halving situation

I doubt these outcomes will disappoint considerably, or we’d possible have had a revenue warning prior to now.

However one factor that might ship the share price down is that if the corporate alerts that it seems unlikely to satisfy its self-imposed targets over the following a number of years. It has been an inconsistent performer for many years, so I do see that as a reputable danger.

One problem of attempting to spice up earnings is that, after the preliminary value cuts (themselves posing reputational dangers in a safety-critical business), pushing up promoting costs can lead clients to buy round extra.

A key danger that I believe might result in the shares halving is a sudden exterior shock that results in a dramatic slowdown in civil aviation demand. That is why I cannot make investments at right this moment’s price.

The pandemic was an instance, however such a shock may be a volcanic eruption grounding flights, or terrorist assault.