The share price of Rolls Royce has recently experienced extraordinary volatility. You’ve had to put a lot of effort into maintaining your composure and remembering that you purchased the company’s shares with the long term in mind. Is it now a good time to acquire more since they have lately decreased? Let’s look more closely.
Issues
The share price movement has been predominantly unfavorable in recent months. The shares have lost 12.5% over the last three months and are now trading at 74p.
This is due to a few factors. First, there has been a big sell-off in the overall stock market. This is mainly because of an economic environment marked by escalating inflation and rising interest rates.
Secondly, the company, a producer of jet engines and electric systems that is listed on the FTSE 100, is being forced to invest more for the raw materials it uses, including titanium. This might be the outcome of the conflict in Ukraine.
Finally, the company’s debt load, which is currently at £7.04 billion, is causing growing anxiety. The fact that it only has a £2.39 billion cash balance makes this situation worse.
The epidemic severely hurt the industry because there was no longer a need for new jet engines. It was consequently forced to reduce workers in order to save money. The shares were selling for roughly 700p before the outbreak. They are now only worth 10% of that.
Although it’s difficult to ignore these problems, we believe that things are starting to get better for the organization.
Rolls-Royce Positive factors
In the midst of this year, it successfully finalised the sale of its Spanish partner ITP Aero. There were around £1.57 billion in profits from the deal. Because it will enable Rolls-Royce (LSE:RR) to pay off some of its debt, this is crucial.
As a stakeholder, we are also happy to see the company receive several contracts. It just recently signed contracts for the construction of naval-based propulsion systems in Turkey and Italy. Revenue will be supported by this, and perhaps, stable profitability will return.
It continues to dominate the market for defence products. It has a long-term agreement with the US military and collaborates with air forces all over the world.
Additionally, it will build missile propulsion systems for the French and British military, generating significant money over the ensuing years. These types of contracts will be necessary for the share price to begin its ascent back to pre-pandemic highs.
It is obvious that Rolls-Royce is not yet out of the woods. Debt is still a problem, and the shares have kept dropping well below where we started.
Despite these issues, we are starting to notice indications that the results are becoming better. The company is becoming leaner, and we believe that this will eventually result in a healthier balance sheet. As a result, in the upcoming weeks, we’ll be raising our holdings.