Image source: Rolls-Royce plc
I admit that I was one of the naysayers during the pandemic who doubted whether Rolls-Royce (LSE: RR.) Shares could ever recover.
Now I regret not having bought some shares back then.
Instead, let's look forward. Could the Rolls-Royce share price continue its impressive rise? Is there still a buying opportunity for me?
What has happened so far?
When the aviation industry came to a screeching halt in 2020, Rolls-Royce saw its performance fall off a cliff. He had to borrow a lot to keep the lights on.
Since then, the pandemic and its woes have eased, allowing aviation to open once again. For Rolls-Royce specifically, a new chief executive, Tufan Erginbilgiç, has overseen a major strategy review. This has produced excellent results to date. Part of this involved getting rid of underperforming divisions and driving efficiency to improve performance and a troubled balance sheet.
It has helped losses turn into profits, overall performance has been on the rise and future prospects are much brighter. The most important thing for me is that the balance sheet is in a much better situation.
What could happen next?
First, the rise in global air travel, which exceeds pre-pandemic levels, could be an aspect that further drives the stock higher. Another would be the continued increase in defense spending. This is currently at its highest levels, which bodes well for companies like Rolls-Royce.
Next, capitalizing on growth markets such as China and Africa could be key to boosting performance and stocks as well. Finally, if all goes well, we might even see a dividend return, which I'm sure will do wonders for the share price and investor sentiment.
On the contrary, there is no guarantee that any of the above will happen. Furthermore, if these events occur, not everything will necessarily be easy. One thing that makes me wonder if the stock could crash is the historical mixed performance. However, I understand that past performance is no guarantee of the future.
In addition, the company depends on many external events that favor it, which could be difficult. For example, to take full advantage of growth in China, the Chinese economy must emerge from its current malaise. In addition to this, geopolitical tensions could boost performance, on the one hand, in terms of defense spending, but hurt air travel demand.
my verdict
Personally, I think the stock can continue its impressive rise for some time to come, as the company appears to be on a roll on all fronts. This includes how the business is managed internally and how external events are also favorable.
From an investment point of view, the stock appears cheaper than its competitors in its market. They trade with a price-earnings ratio of 13.
I would still be willing to buy some shares next time I can. I'll have to live with the fact that I didn't buy sooner. Either way, I'm invested in the journey and history of Rolls-Royce, a bit like when I discover a new series I like and I can't help but find out what happens next.