Investor sentiment towards Rolls-Royce (LSE: RR) has been cooling, and the late 2021 surge has already fallen back. The Rolls-Royce share price is still up 14% over the past 12 months, in line with the FTSE 100. But at 120p, as I write, it’s still way down on the 150p levels it reached in November.
I’ve liked Rolls for many years, though I’ve never got round to buying any. So am I looking at a buying opportunity now? And what do I think will get the company back on the track to long-term growth?
There’s one thing I don’t expect to make much of a difference to the Rolls-Royce share price, and that’s full-year results for 2021. For one thing, it was a seriously unusual year with aviation so severely restricted, and it can’t be much of an indicator of the long-term future for Rolls. In addition, I don’t expect the figures to hold any surprises.
A Q3 trading update gave us the essential trends. The company achieved net cash inflow in the third quarter, but still expects to report free cash outflow for the full year. It should be better than the previous guidance of a £2bn outflow, but that will already be built into current investor expectations.
Other than that, it’s all about restructuring, disposals, and rebuilding the balance sheet situation. And the eventual result of that is surely the critical step in getting investors back on board.
Rolls-Royce share price sentiment
I think that’s becoming especially key, as I’m seeing a shift in investor’s attitudes. Over the past year, we’ve seen reactions to short-term news, buying in whenever there’s a hint of optimism, and selling when there’s a fresh Covid scare (or any other bad news).
But now, I reckon investors are settling back to a longer-term view again. And rather than chasing the Rolls-Royce share price, they’re more focused on the company itself.
That really has to be a good thing. Short-term upsets, as we’ve seen these past couple of years, do come along and can give us an opportunity to get in when shares are cheap. But I think that can only work if we understand the underlying value of a company and forget short-term share price movements.
As an example, I’ve looked at the IAG share price, which has fallen more then 80% since the pandemic started. Those focusing on share prices might see a great opportunity to get in before the recovery finally happens. But I reckon looking at the full valuation of the company tells a different story.
Long-term background
I’m also very aware that Rolls-Royce was facing difficulty even before the pandemic arrived. And it could still take some time to see how that’s being addressed. So will I buy now?
I do think there’s a solid chance the Rolls-Royce share price could end 2022 significantly ahead of today. But there’s so much uncertainty and I wouldn’t be surprised to see more short-term bearishness first.
So I’m going to resist the opportunism temptation. But Rolls-Royce is still very much on my list of potential long-term buys.
