Rolls-Royce earnings: here’s what will help me decide to buy more shares

Rolls-Royce is set to report its biggest annual loss in history on Thursday, but is Fool UK contributor Joe Clark buying or selling the shares?

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FTSE 100 stock Rolls-Royce (LSE:RR) will release its earnings report on Thursday 11th March at 9am. It is well expected that the company will report its biggest annual loss in history and go into depth about the detrimental impact the Covid-19 pandemic has had on the business. Nonetheless, I think there might be light at the end of the tunnel for Rolls-Royce shares.

Here are the main reasons why I am re-entering Rolls-Royce albeit tentatively, as I think there is a chance that we see a positive rise of the share price after earnings.

Rolls-Royce is expected to report its biggest loss ever

The market is already expecting the company to have its biggest ever loss on record so that isn’t likely to spook the share price if it is indeed reported. In fact, International Airlines Group recently reported a loss of £7.5 billion and its share price rose 3.5%; I am hoping that we might see something like that for Rolls-Royce’s shares.

Reasons the stock could rise

I am hoping that the management comes out speaking upbeat on its recovery, especially in terms of its aerospace division. This division manufactures and services engines for the airline industry and makes up 50% of the company’s total earnings. Therefore, with the vaccination roll-out going better than expected in the UK and improving globally, this is positive for Rolls-Royce’s main revenue stream especially as more airlines are now travelling than they did in the fourth quarter. Additionally, I hope we hear more from management about this and that they provide upbeat guidance for the rest of the year, especially with foreign holidays from the UK set to be allowed from 17th May.

Reasons Rolls-Royce shares could fall

A key metric to focus on will be its liquidity position (cash). During the pandemic, the management team reacted quickly and raised money from a rights issue. They also took measures to cut-costs to make the business leaner, which I think has only made the company a more attractive proposition if it can survive this pandemic. However, if we were to hear that Rolls-Royce may need to do another round of financing, or if it raises concerns about its cash position being able to survive a longer-than-expected recovery, this could send the share price falling.

Why I am buying

Nevertheless, although the shares have recovered somewhat, they are still significantly down from Rolls-Royce’s pre-pandemic levels of over 600p. That’s why I think now, before its FY earnings, is a great chance to get into this stock. Therefore, I am buying more shares in this global brand in the hope of a boost after earnings, but I will be holding a little bit of money back in case a ‘buy the dip’ opportunity presents itself instead.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Joseph Clark holds shares in Rolls-Royce. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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