Business & Investment

Is Rolls-Royce’s stock price still too low?

Rolls-Royce Holdings (LSE: RR) has been a significant part of the problem over the last two years. The misfortune of the travel industry by Covid-19 has destroyed profits and put huge debt on the business. As a result, Rolls-Royce’s share price has fallen by about 50% since the beginning of 2020.

The rollout of mass vaccination has fueled expectations for a recent recovery in the aviation industry. As a result, Rolls-Royce’s share price has risen 19% in the last 12 months. However, it is still possible that engine makers will remain too cheap at the current 125p level.

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Why? Wellsity analysts believe Rolls-Royce’s profits will surge 210% year-on-year in 2022. This results in a price-earnings ratio (PEG) of 0.1. According to investment theory, the reading 1 below suggests that stocks are undervalued given their growth prospects.

Reasons to buy Rolls-Royce stock

Rolls-Royce fans claim the sky is much clearer FTSE 100 Looking ahead firmly. Brokers expect an additional 5% increase in annual income in 2023 and expect a steady recovery.

Airplane orders have begun to increase significantly in major litmus tests in the aviation industry. Boeing It was announced last week that it recorded a total jet order for the 909 in 2021. This is twice the number recorded by US aircraft manufacturers in 2020 and 2019. As one of the industry’s leading engine builders, this is, of course, great news for Rolls-Royce.

We also believe that Rolls-Royce’s increasing focus on environmentally friendly technologies will pave the way for significant profits. Plans to build small reactor swaths across the UK will help the government meet its emission targets. It also offers a bit more strength through industry diversification (in other words, reducing companies’ reliance on the sound-cycle aviation industry).

The company also creates clean engines for airplanes and other vehicles.this is UltraFan For example, airplane engines are 25% more fuel efficient than the first generation. Trent engine.

on the other hand…

Rolls-Royce is clearly in a better location than it was a year ago. But I still have persistent questions about investing in the company myself. This is one of the UK’s most permanent engineering success stories, but due to external circumstances, Rolls-Royce is currently in debt (net debt in June was about $ 5 billion).

These huge debts can significantly hinder a company’s growth plans. Further problems arise when the Covid-19 crisis is prolonged and a new travel ban is re-applied to ground planes. collect.. In this scenario, you can imagine Rolls-Royce increasing debt or using shareholders to increase cash in order to keep the lights on.

Rolls-Royce stock prices are certainly cheap. However, I think this reflects the significant short-term risks facing the FTSE 100 company and its buckling balance sheet. There are many other cheap UK stocks I would like to buy today.

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Royston Wild There are no positions in any of the above stocks. The Motley Fool UK does not have a position in any of the shares mentioned. The views expressed about the companies mentioned in this article are those of the author and may differ from the official recommendations made by subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, given the various insights, A better investor than us.

Is Rolls-Royce’s stock price still too low? Is Rolls-Royce’s stock price still too low?

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