I at all times preserve a listing of shares I wish to personal if I might purchase them at a sexy price. Throughout the market turbulence in current weeks, I’ve purchased a few of these shares, corresponding to JD Sports activities and Filtronic. Rolls-Royce (LSE: RR) can also be on my listing. However the Rolls-Royce share price has not but fallen to a degree the place I believe it’s attractively sufficient priced so as to add to my portfolio.

Why not?

Excited about dangers and rewards

All shares supply (or seem to supply) some potential for reward, in any other case traders wouldn’t purchase them.

However all shares additionally contain danger. In some instances that’s far, far greater than in others. However you will need to keep in mind that even probably the most steady of shares includes dangers.

Rolls-Royce faces dangers of exterior demand shocks

When you have no idea what an exterior demand shock is, the previous couple of weeks have offered a really useful sensible demonstration.

A requirement shock is when a marketplace for a services or products abruptly encounters much less collective demand from would-be prospects. That may be due to issues it has achieved itself, corresponding to elevating costs or decreasing its distribution.

Nevertheless it will also be due to an exterior issue. Tariffs are one and they’re definitely a danger for Rolls-Royce, given its international footprint.

However there are different potential exterior demand shocks that I see as dangers for each revenues and income at Rolls-Royce.

Pandemic-era journey restrictions illustrates this completely. Demand for civil aviation cratered, driving down demand for plane gross sales and servicing. Rolls-Royce misplaced plenty of cash — and its share price was in pennies.

A essentially enticing enterprise mannequin

How occasions change!

The Rolls-Royce share price has soared 471% prior to now 5 years, even when permitting for a 16% correction because the center of final month.

Essentially, I believe there’s a lot to love concerning the plane engine enterprise. Excessive technical and capital necessities act as boundaries to entry, giving producers pricing energy. Rolls has a big put in base of engines, serving to present substantial servicing revenues.

It has a powerful status and can also be benefiting from elevated defence spending by many governments.

I’m nonetheless not prepared to purchase…

However whereas these components make the enterprise enticing to me, I’d solely need to make investments at a price I really feel gives me ample margin of security when contemplating the dangers Rolls faces.

The present price-to-earnings ratio of 23 appears excessive to me, though it partly displays Metropolis expectations of earnings progress.

At a few kilos a share, I’d be proud of the margin of security on supply – and fairly presumably additionally at £3 a share if enterprise efficiency stayed as sturdy because it has currently.

At the moment, although, the Rolls-Royce share price is nearer to £7. For now, it is going to stay on my watchlist however I cannot be investing.