Rolls Royce is an illustrious name in the UK industry. Once famous for making the most extravagant car in the world, the company has slowly pivoted into aerospace and defence. Most recently, the company is seeking to pioneer modular nuclear reactors – a smaller but more efficient version of the older reactors.
Is Rolls Royce a good investment in the long term (LON:RR)?
While Rolls Royce is a famous industrial company, did it provide good shareholder returns for investors? A quick glance at its long-term chart suggests not.
At 80p, Rolls Royce share price is only a little higher than the level registered back in the nineties. The past two years saw extreme stress heap on the company’s revenue and profitability. In 2020, a massive multi-billion rights issue was conducted to shore up its balance sheet. Last year, the firm restructured its workforce by sacking 9,000 workers. All in all, it was a titanic struggle for the aerospace company during the pandemic.
The question for investors now is: Will the share fly in the years ahead? Fundamentally, there is a case for buying Rolls Royce as we look forward to a cyclical recovery in a few quarters time. The pandemic is fading and more travellers are in the air. Airlines will start to invest in new planes and particularly Rolls Royces engines. Technically, however, the stock remains in a long base formation. The stock was thoroughly crippled by the pandemic and would need a massive breakout (above 100p) to re-inforce a recovery stance.
Another point worth making is that Rolls Royce is now charging into the nuclear space. This is a high-capital intensive business with a long cycle. Any problems there may dent RR’s recovery.
Normally, we would say, buy them when they are down.
The issue is, Rolls Royce’s share price has been down for so long that buyers have either ran out of money or patience. As recently as August, Rolls Royce was looking rather shaky at 60p. A little more selling would have broken that 60p floor.
To give yourself a better risk-reward ratio, wait for prices to regress from the recent rally. Perhaps one should take a shorter time frame here too. If one is lucky to generate 20-30% gain, take it. Then wait for prices to hit oversold before buying.
Given RR’s long-running downtrend, going ‘all in’ Rolls Royce’s stock is not a good idea.
Like most of the other stocks, it is extremely hard to put a valuation on a company these days – as share prices can change by 25% in a week to render these figures outdated.
While Roll Royce’s profitability has improved in 2021, the company is not out of the woods yet. Yes, it has a £50 billion order, inflation and rising cost base are two negative factors in Rolls Royce business that may dent its future profitability. The company also carries a £5 billion debt pile, not a good burden to bear when interest rates are rising.
At £7 billion market cap, Rolls Royce is not very extremely cheap, but I would not say it is very overvalued or undervalued.
Source: Rolls Royce plc.
The last few weeks have brought a brief respite for Roll Royce’s long-suffering shareholders. Price rallied from mid-sixties to near 90p – a gain of more than 30%. The advance was propelled by:
- A rally in the US market – that brought about a rebound in most stocks
- Recovering aerospace/airline stocks – which led to a bounce in Roll Royce’s share price (EasyJet bottomed out at roughly the same time as Rolls Royce, see below)
- Minor breakout at 75p – a feature that created further buying momentum
After a sharp rebound, the stock is currently consolidating around 80-90p band.
The brokerage community is hardly enthusiastic about Rolls Royce.
This is supported by the fact that nearly half of them recommend ‘Hold’, which can sometimes translated into ‘avoid’. Four put out ‘Sell’ recommendations outright (see below).
We can see why. With share prices now over 75 percent below its 2013 peak of 430p, investors who held over this period are hugely underwater. Therefore, until Rolls Royce share price start to recover we expect analysts to continue their conservative prices estimates.
Source: Financial Times
To buy shares in Rolls Royce (LON:RR), you need a trading or share dealing account. Follow these three steps if you want to buy shares in Rolls Royce:
- Decide if you want to buy Rolls Royce shares in the short-term or invest in the long-term
- Compare share dealing and trading fees in our comparison tables
- Choose which broker is right for you and open an account
Buying one LON:RR share costs 107.86p. However, as well as the 107.86p cost of buying the shares you will also have to pay stamp duty, dealing and custody account fees for holding your shares with a broker. You also have to consider the difference between the bid price (the price at which you sell shares) and the offer price (the price at which you buy shares). These fees vary depending on what sort of account you open, and with what broker. You can compare the different costs associated with the different types of trading and investing accounts in our comparison tables below.
It’s also important to remember that share prices can move quickly, for example, the current LON:RR share price is 107.86p which is a change of 0.88 or 0.81% from the last closing price of 107.86 with 22,682,960 shares traded giving LON:RR a market capitalisation of £n/a. The most recent daily high has been 109.44 and daily low 107.26. The LON:RR share price 52 week high has been 122.72 and the 52 week low 64.44. Based on the most recent LON:RR share price opening of 107.86, the current LON:RR EPS (earnings per share) are 0.22 and the PE (price earnings ratio) is n/a.
Pricing data automatically updates every 15 minutes
The answers to our frequently asked questions by people interested in buying Rolls Royce shares about Rolls Royce’s share price are automatically updated every 15 minutes.
The current Rolls Royce share price is 107.86p
Rolls Royce’s share price has moved 0.88p or 0.81% today.
Yesterday, Rolls Royce’s share price closed at 107.86p
There were 22,682,960 shares traded in Rolls Royce yesterday.
What is Rolls Royce’s market capitalisation (market cap)?
Rolls Royce has market cap of £11,156,390,000
Rolls Royce’s most recent daily high has been 109.44p
Rolls Royce’s most recent daily low has been 107.26p
The Rolls Royce share price 52 week high has been 122.72p
The Rolls Royce share price 52 week high has been 64.44p
Rolls Royce’s current earnings per share (EPS) is 0.22
What is Rolls Royce’s price-earnings ratio (PE)?
Rolls Royce’s current price-earnings ratio (PE) is n/a