By using this site, you agree to the Privacy Policy and Terms of Use.
Accept
Money MindHubMoney MindHubMoney MindHub
  • Home
  • Investing
  • Business
  • Personal Finance
  • Marketing
  • Banking
  • Mining
  • Retirement
Reading: Why the Rolls-Royce share price could continue to outperform
Share
Notification Show More
Money MindHubMoney MindHub
Search
  • Home -Money
  • Investing
  • Business
  • Personal Finance
  • Marketing
  • Banking
  • Mining
  • Retirement
© 2024 All Rights Reserved | Powered By moneymindhub
Money MindHub > Investing > Why the Rolls-Royce share price could continue to outperform
Investing

Why the Rolls-Royce share price could continue to outperform

MoneyMindHub May 27, 2024
Share
4 Min Read
Why the Rolls-Royce share price could continue to outperform
SHARE

Image source: Rolls-Royce Holdings plc

Let there be no suspense – I think the Rolls-Royce (LSE:RR) share price looks like a bargain, even after a 197% increase over the last year. And last week’s news seemed to confirm this. 

The company announced engine flying hours are back to their 2019 levels and reiterated its targets for this year. The stock didn’t react, but I sense the market’s making a mistake. 

The bull case

I believe the bull case for Rolls-Royce shares has been the same for some time. The company’s aiming to achieve £3.1bn in free cash flows by 2027. 

Put simply, I think the stock’s a great value if the underlying business can achieve this. The firm has a market-cap of £37bn, which means £3.1bn a year amounts to an 8.3% return.

That’s about double the return offered by a 10-year UK government bond at the moment. So if things go to plan, the stock will look like a bargain at today’s prices.

Obviously, Rolls-Royce might not hit its targets until 2027 and the stock should reflect this risk. But with things going to plan, I take the view the share price should be higher than it is. 

Trading update

Last week, the company announced that engine flying hours had recovered to pre-Covid levels. And management reiterated its forecasts for the current year. 

Both of these developments are very positive, in my view. The foundation of the recovery in the Rolls-Royce share price has been a return to pre-pandemic demand for flying. 

This has set the company off on a virtuous cycle. Higher free cash flows have led to lower debt, which has reduced interest payments, leading to higher free cash flows – and so on.

See also  Recently released: May's small-cap stock recommendation [PREMIUM PICKS]

All of this has been propelling the stock higher and the latest update indicates that things are going well. The share price however, was largely unmoved by the latest news. 

Optimism

I’ve been seeing reports that the number of engine flying hours was expected to come in even higher than it did. That probably explains the market’s subdued response.

As I see it, the company being on track is absolutely fine given its stated targets and the current level of the stock. But it does point towards a genuine risk with the business.

If travel demand does start to weaken, Rolls-Royce might find its growth slows significantly. And that could jeopardise the 2027 target that the bullish thesis is built on. 

A rising cost of living makes it impossible to eliminate this risk entirely. But that’s why I think the latest update reiterating that things are on track is a significant positive.  

Still a bargain?

At today’s prices, I don’t believe Rolls-Royce needs to to anything spectacular for the stock to be good value. It just needs to stay on track to meet its medium-term targets. 

Each time the company reports this is the case, I think the risk with the stock goes down and the share price should go up. Whether it’s the best FTSE 100 stock to buy right now is another question, but I certainly expect it to outperform the index.

You Might Also Like

What is an ETF? (Exchange-Traded Fund)

Up 20% with a 9% yield! This stock remains my top passive income earner

How Top Leaders Turn Pain and Pressure Into Clarity and Focus

Don’t Forget To Report Your Gains From Crypto — The IRS Already Knows About Them

2 amazing UK shares on my watchlist for May

TAGGED: Ninaithale
Share This Article
Facebook Twitter Copy Link
Previous Article By: Holly Reisem Hanna By: Jackie Grav
Next Article tiktok shop officially launches in us TikTok Shop Officially Launches In The US
Leave a comment Leave a comment

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Latest News

What is an ETF? (Exchange-Traded Fund)
What is an ETF? (Exchange-Traded Fund)
Investing May 8, 2025
OpenAI Hires Instacart CEO to Oversee ChatGPT, Applications
OpenAI Hires Instacart CEO to Oversee ChatGPT, Applications
Personal Finance May 8, 2025
Brawny brings back the Brawny Man for brand refresh
Brawny brings back the Brawny Man for brand refresh
Marketing May 8, 2025
Passive and Active: text from letters of the wooden alphabet on a green chalk board
Up 20% with a 9% yield! This stock remains my top passive income earner
Investing May 8, 2025
MARA Holdings Achieves Impressive 705 BTC Production in April
MARA Holdings Achieves Impressive 705 BTC Production in April
Mining May 8, 2025
How to Get a Small Business Loan When Self-Employed
How to Get a Small Business Loan When Self-Employed
Business May 8, 2025

Recent Posts

  • What is an ETF? (Exchange-Traded Fund)
  • OpenAI Hires Instacart CEO to Oversee ChatGPT, Applications
  • Brawny brings back the Brawny Man for brand refresh
  • Up 20% with a 9% yield! This stock remains my top passive income earner
  • MARA Holdings Achieves Impressive 705 BTC Production in April

Recent Comments

No comments to show.

You Might also Like

What is an ETF? (Exchange-Traded Fund)
Investing

What is an ETF? (Exchange-Traded Fund)

May 8, 2025
Passive and Active: text from letters of the wooden alphabet on a green chalk board
Investing

Up 20% with a 9% yield! This stock remains my top passive income earner

May 8, 2025
How Top Leaders Turn Pain and Pressure Into Clarity and Focus
Investing

How Top Leaders Turn Pain and Pressure Into Clarity and Focus

May 8, 2025
Don’t Forget To Report Your Gains From Crypto — The IRS Already Knows About Them
Investing

Don’t Forget To Report Your Gains From Crypto — The IRS Already Knows About Them

May 7, 2025
moneymindhub moneymindhub

Our mission is to empower individuals with the knowledge and tools they need to achieve financial independence and make informed financial decisions.

Editor Choice

How I Quit My 9-5 And Made $1.4 Million Last Year Selling On Amazon
The Top 10 Burger Franchises in 2024
15 Ideas For What To Sell On Etsy
How much passive income from stocks could I make with a £37k salary?

Follow Us on Socials

We use social media to react to breaking news, update supporters and share information

Facebook Twitter Telegram
  • About Us
  • Contact Us
  • Disclaimer
  • Privacy Policy
  • Terms of Service
Reading: Why the Rolls-Royce share price could continue to outperform
Share
© 2024 All Rights Reserved | Powered By moneymindhub
Welcome Back!

Sign in to your account

Lost your password?