It gets a lot of stick, the FTSE 100. It might have been smashing record highs recently, but people aren’t all that optimistic on the index. FTSE 100 stocks are all about the dividends, they say. There’s been no growth since 1999, they note.
In among the doom and gloom, there are plenty of gems to be unearthed, however. Rolls-Royce (LSE: RR) is a notable example. The shares rose 10 times in value since a dip in 2022. I was quite pleased to see my own position grow with them, even if I didn’t quite catch the low point, and wondered what would be the next FTSE 100 stock to do the same thing.
Why not, I thought, employ a little unnatural assistance with the help of everyone’s favourite dubiously veracious chatbot ChatGPT? So that’s what I did.
Robot wizard?
Here’s the prompt I began with: “What FTSE 100 stock could be the next Rolls-Royce and grow 10 times in value?”
The text began with the usual disclaimers. Nothing is guaranteed. Careful analysis must be taken. All important stuff.
I know such rapid growth is the exception rather than the norm but I’m looking to invest, not to gamble, so I can’t fault it on that front. After its precautionary preamble, it got to the meat of the issue.
“One company that has garnered attention in this context is Melrose Industries (LSE: MRO).”
ChatGPT then regaled me with talk of the engine and airframe parts Melrose produces along with highlighting its many patents (over 650) that create a high barrier to entry for competitors.
I found it curious how it jumped to another aerospace company. Melrose, like Rolls-Royce, operates in a sector that’s hard for a new company to enter. That creates a strong moat, or protection, around its sales and earnings.
While that’s a real bonus for any company, it’s not a clear sign of rapid growth potential.
The verdict
There are other similarities too. One aspect of Rolls-Royce’s growth story was a turnaround in falling revenues and sizeable losses. Melrose has also experienced revenue falling from £10bn in 2019 to £3bn last year reported. It was loss-making in all the years between too.
Does that mean an equally terrific buying opportunity for me? I don’t think so. Another detail of the Rolls-Royce ascent was that it had fallen from 400p a share to 33p in just a few short years. That low was during the mini-crisis that was the 2022 mini-budget as well.
Melrose shares change hands for 623p which isn’t far from its own all-time high. A 10 times multiple on that would require Nvidia-esque growth.
That’s not to say it’s a bad investment on the whole, but I don’t think it’s one where an investor like me might expect such rapid growth.
That said, if Melrose starts shooting up soon then I will doubtless be running cap in hand back to the wise oracle of ChatGPT for more hot tips.
This post was originally published on Motley Fool
