Can the Rolls-Royce share price keep rising?

The Rolls-Royce share price has risen over 35% in the past 30 days. Dylan Hood looks at the reasons for this and if he thinks this trajectory can continue.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Rolls-Royce (LSE: RR) share price plummeted during the stock market crash of March 2020 and continued falling. It fell from over 230p to an 18-year low of just 38p in October 2020. Since then, the shares have struggled to gain momentum, hovering around the 100p mark for much of 2021. However, over the past 30 days, the Rolls-Royce share price has found new momentum, rising 35%. Let’s take a closer look at the reasons behind this rise, whether this trajectory might continue and whether it’s a buy for my portfolio.

Encouraging news

A key reason for the recent price rise is news of Rolls’ sale of its Spanish business ITP Aero. The sale of the subsidiary to Bain Capital Private Equity will raise approximately €1.7bn. This transaction has been described as a “key element” of the firm’s disposal plan to help rebuild the balance sheet in the wake of the pandemic. Not only does this add cash, but it’s also a key part of rebuilding Rolls’ credit profile. This will allow the firm to borrow money more easily down the line. Both these factors are great news and help explain that rise in the Rolls-Royce share price.

Another key element is news that Rolls won a potential 17-year contract with the US Air Force to provide F130 engines. The contract has a base period of six years, worth approximately $500m. This guarantees future business, meaning a steady inflow of cash. A key problem Rolls has faced in the aftermath of the pandemic is problems with its balance sheet. It needs business like this to ensure its future.

Additionally, the travel industry is beginning to operate nearer pre-pandemic levels. More flights mean more engines will need to be serviced by the firm. This will also help repair the balance sheet and drive up the Rolls-Royce share price.

Risks moving forward

While the above factors point towards a stronger financial position for Rolls, the balance sheet remains damaged, and the company still holds a large amount of debt.

The 2021 half-year results showed the company had over £3bn debt as of 30 June 2021. Inflation has been creeping up due to Covid-related government fiscal stimulus. As inflation rises, we’re more likely to see the Bank of England raising interest rates. If this happens, Rolls could be in a sticky position due to its debt pile.

In addition to this, there are still worries that the travel industry may not recover as quickly as hoped. Analysts at McKinsey don’t expect the industry to operate at full capacity until 2024. If so, it would place a lid on Rolls’ recovery.

Can the Rolls-Royce share price keep rising?

The shares may have risen 35% in the past 30 days, but I won’t be rush to buy any shares for my portfolio just yet. I do think the Rolls-Royce share price could push higher in the future, however, after such big movements, corrections often follow.

For now, I will be keeping a keen eye on the company’s results as it continues to rebuild its balance sheet. If positive news keeps coming, I would expect the Rolls-Royce share price to keep creeping up. But I’ll only buy when I see the recovery on much firmer ground.

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 assessed. Consider taking independent financial advice.

Dylan Hood has no position in any of the shares mentioned. 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »