I like lots about Rolls-Royce (LSE: RR) and have owned the shares prior to now. However whereas I’d be glad to turn into a shareholder once more if the fitting alternative arose, I’ve no instant plans. As a substitute, I’m ready for a decrease Rolls-Royce share price earlier than shopping for – a lot decrease, actually.

To start out, I should acknowledge that the previous couple of years have been nothing in need of outstanding for shareholders within the blue-chip FTSE 100 firm.

In 2023, it was the most effective performer of any FTSE 100 share. Final 12 months it got here near taking that title once more (although IAG beat it).

Over the previous 5 years, the share is up 144%. 5 years in the past, although, it had not but been rocked by the pandemic-era journey restrictions and their impact on civil aviation demand.

Since October 2020, in contrast, the Rolls-Royce share price has soared by 1,322%.

Nonetheless, previous efficiency is just not essentially a sign of what to anticipate in future. That’s the place my concern about including the share to my portfolio on the present price is available in.

Stable fundamentals however a difficult enterprise house

A part of the investor optimism about Rolls displays the corporate’s strengths.

It operates in a enterprise space that advantages from excessive limitations to entry: few companies have Rolls’ technical understand how.

Its massive put in buyer base is one other industrial benefit. Shopping for an engine that will run for many years is barely the beginning of an plane proprietor’s expenditure. It is going to additionally have to be serviced repeatedly and in lots of circumstances, homeowners choose the servicing to be accomplished by the corporate that made the engine within the first place.

Up to now, so good. On high of that, Rolls is benefiting from booming demand within the defence sector and will additionally see progress in its energy enterprise over years to return.

However I see a giant problem with the core civil aviation house and it’s one that’s largely outdoors the corporate’s management.

Think about the explanation for that 2020 slide within the share price – and others earlier than it, resembling following the 2001 US terrorist assaults. Demand for civil aviation can plunge in a single day for causes largely or wholly outdoors an airline’s management, not to mention an engine maker.

Why I don’t just like the price

So whereas in precept I’d be glad to purchase Rolls-Royce shares once more, I need to purchase at a price that offers me a margin of security I really feel is sufficiently big to replicate that threat of abruptly plummeting civil aviation demand.

After the surge lately, the present Rolls-Royce share price-to-earnings ratio of 21 doesn’t give me what I believe is a sufficiently big margin of security for consolation.

The price might go even greater from right here, I reckon, particularly if administration delivers on its formidable monetary efficiency targets.

If it doesn’t, nevertheless, the share might crash – and I worry that might additionally occur if civil aviation demand suffers one other huge exterior shock.