Again in January I wrote: “I actually think Rolls-Royce (LSE: RR) shares could yet go higher from here, including potentially hitting the £8 mark.” Already, they’re tantalisingly shut. Yesterday (4 March), they got here inside simply a few pence of £8.

Might they maintain going — and get to £9?

A trio of price boosters

Regardless of a storming efficiency each final yr and the yr earlier than, the Rolls-Royce share price is already up by a 3rd to this point this yr – and we’re solely within the first week of March!

That’s no coincidence. For one factor, the engineer not too long ago unveiled robust outcomes for final yr, bringing again its dividend after a spot of some years.

It additionally elevated its already aggressive medium-term targets, having hit some earlier ones two years early. In the meantime, an elevated deal with defence in European governments has despatched up a number of shares with publicity to the sector, together with Rolls.

Issues may get even higher

What strikes me about these drivers for the latest surge to an all-time excessive in for Rolls-Royce shares is that every (and even all) of them might occur once more within the coming yr.

Rolls might ship one other set of fantastic outcomes for this yr. In truth, I believe it must. Metropolis expectations at the moment are excessive and if Rolls doesn’t ship on them, I reckon the share price might crater.

Having twice now rolled out formidable targets and seen traders rub their palms with glee (sending the shares up), present administration will realise that in some unspecified time in the future they might do the identical once more.

The factor a couple of medium-term goal (not to mention a long-term one) is that it may be introduced earlier than the entire particulars could have been found out with regards to delivering it.

As for defence spending, the sky is the restrict. I might properly foresee a scenario the place governments in Europe – and probably elsewhere – ratchet up their spending exponentially. Not solely might that result in increased demand however it will even be a sellers’ market. If you’re an airforce searching for specialist bits of equipment, there aren’t that many suppliers you’ll be able to name.

I’ve missed out massively: what ought to I do now?

I’ve to confess, the surging price of Rolls-Royce shares up to now couple of years has impressed me for a mature blue-chip industrial producer.

It has additionally caught me considerably off guard. Like I stated above, I noticed an argument for the price shifting up to £8, simply as I had constantly recognised a bull case for the share up to now a number of years. It has specialist experience, a big put in buyer base, legendary model and many distinctive know-how.

I believe the share might hit £9 – or increased. However I do know I could possibly be incorrect. And I’m nonetheless hanging again, watching moderately than including Rolls to my portfolio. Why would I try this, on condition that I see additional potential right here? It’s all about threat administration.

Rolls trades on a price-to-earnings ratio of 26. That’s not low cost in my e-book and arguably is pricey. It additionally gives me far too little margin of security if demand for air engine gross sales and servicing immediately falls off a cliff as soon as extra, for causes outdoors its management. That occurs.