The Rolls-Royce (LSE:RR) has surged almost 10-fold over the past two years. Very few people saw it coming, although some analysts — notably at UBS — certainly suggested the stock could push as high as 600p.

However, some investors will always be wary of a stock that’s demonstrated such extraordinary growth, and occasionally analysts too.

In fact, one analyst has broken with the broadly positive sentiment on the aviation and defence giant, maintaining a Sell rating and issuing a price target of just 240p.

A crowded trade

In August, Berenberg analysts maintained their Sell recommendation for Rolls-Royce shares, focusing on investor positions and the crowded nature of the market rather than the company’s fundamentals.

Analyst Philip Buller noted that hedge funds are heavily invested and reluctant to take profits, while long-only investors are assumed to be underweight, which could lead to further gains if they adjust their positions.

Moreover, Buller argues that the positives are already priced into the FTSE 100 stock. He expects enthusiasm to wane, noting that September could present challenges for the share price.

Berenberg’s caution stems from the risks to mid-term expectations, particularly after a remarkable 220% rally in 2023. The bank stresses the importance of long-term service agreement economics. And it noted that investors seem willing to fully accept management guidance.

Berenberg’s target price remains unchanged at 240p, suggesting that the stock could more than halve in value.

Should we listen?

Well, let’s start by noting that the consensus of all 17 analysts covering the stock is 535p — eight Buys, four Outperforms, three Holds, one Underperform, and one Sell. So clearly, Buller is in the minority.

Likewise, many analysts contend that there’s a wealth of catalysts that will push the stock higher. In the near term, all three of its business units are performing well, with strong order books and improving margins.

From a long-term perspective, Rolls-Royce’s focus on decarbonisation is particularly promising. The company is focused on achieving net-zero emissions by 2030. It has already reduced greenhouse gas emissions by 40% over the past decade.

In civil aviation, the business is working on hydrogen fuel-compatible engines and ensuring all engines are compatible with sustainable aviation fuel. And its power systems segment is advancing in battery storage solutions, integrating renewable energy sources.

Analysts are also excited about the prospect of Rolls’s small modular reactors (SMRs) — mini-nuclear plants. But it’s worth noting that the segment may run low on funds next year.

My final point, and this might be contentious, is that Berenberg doesn’t always have the best reputation. As one comment I found online notes that “Berenberg puts out these huge research pieces and pretends to be Bernstein, but the quality is vastly lower“.

The bottom line

It’s always important to be wary of the potential risks involved when buying a stock. And it’s clear that Rolls is closer to fair value today than it was a year ago. However, personally, I’m buoyed by the long-term prospects and enduring demand for aircraft engines so won’t be selling.