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It’s a great feeling when you buy a recovery stock and it goes off like a rocket, like rolls royce (LSE:RR) Shares just had.
I’m particularly pleased because I had been watching his stock for five years, waiting for an entry point. I finally decided that the company’s fortunes couldn’t fall much lower, and I pounced on it on November 1. My good timing was due to both luck and judgement, of course. Nobody can question the movements of the stock price with consistency.
This aircraft engine maker is flying
I bought Rolls-Royce shares because I thought they were cheap as chips. They are now 76% higher, so should I bank my winnings, stay put, or buy more?
In truth, there is no way I am going to deposit my winnings. I never buy stocks with such a short-term perspective. I didn’t buy Rolls-Royce for a quick capital hit, but to generate both long-term growth and income.
Although the FTSE 100 The aircraft engine maker removed its dividend in 2019, as a condition of some of its credit lines, I hope that changes. The board may even recommend shareholder payments in 2023, “subject to the satisfaction of the conditions and our consideration of the progress made to strengthen the balance sheet”.
Otherwise, we can expect payments from shareholders. “in the medium term”, Which is fine by me. As long as there is a medium term, that is. Incoming CEO Tufan Erginbilgic surprised investors and staff by calling his new role “rig on fire”adding that”This is our last chance.”.
Soon after, the stock price skyrocketed. Either investors see Erginbilgic as the firefighter Rolls-Royce needs, or they never took him. “last chance” things seriously. I bet it’s both.
in the long run
The stock’s jet-like rally was buoyed by last week’s higher operating profit that beat expectations, which rose 57% from £414m to £652m. That was due to increased international travel after the pandemic, which benefits Rolls because its aircraft engine maintenance contracts are based on hours flown (which are up 35%). Revenue grew 20% from £11.2bn to £13.5bn.
Erginbilgic had previously told Rolls-Royce staff that they can’t use Covid as an excuse, which may be good psychology but isn’t entirely true. As these results show, the Covid lockdowns had a massive impact.
I’m also glad about the latest drop in net debt. It now stands at £3.3bn, down from £5.2bn at the end of 2021, due to sales and improving cash flow. Rolls-Royce also boasts strong new order gains in its Defense and Civil Aerospace operations, and a record order book in Power Systems.
There is still a long way to go, as Erginbilgic knows well. Rolls-Royce’s transformation program still has a long way to go before it takes the company (and its share price) to the next level.
I’m not in a big rush to increase my share after the recent increase. I’ll sit still and enjoy the sweet aroma of (short-term) stock price success, fueled by my low entry price.
Instead, I’m on the hunt for more bargain FTSE 100 stocks, ideally ones that haven’t shot up by three-quarters. I think there are many out there.
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