At 85p, are Rolls-Royce shares a no-brainer buy? 

The Rolls-Royce share price look very cheap right now. And I think this might be my last chance to buy before it explodes.

| More on:

Rolls-Royce (LSE: RR) shares have been on a dismal run this year. But things are looking brighter for the engineering firm with recent developments shining a light on some of its recent projects. While its core business gathers momentum with the return of air travel, its emerging businesses look like they could be great future cash generators. Can the Rolls-Royce share price finally gather enough momentum to make a rebound from here? Here are reasons why I think it is very likely. 

Are Rolls-Royce shares ready for takeoff?

The board describes 2021 as a period of transition and this is true in more ways than one. Yes, the company made considerable inroads in its power systems and defence wings. But the strongest sign that Rolls-Royce shares could make a comeback is the rise in civil aviation numbers.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Aircraft transition data is a good way to judge the health of the aviation industry. A transition is when an aircraft is repurposed (commercial to cargo) or traded with another firm. Transitions usually mean new service and maintenance contracts, which is a huge market for Rolls-Royce. And transition activity increased in 2021 after a dull 2020.

In 2021, 83% of grounded aircraft re-entered service and 177 transitions were completed compared to 94 in 2020. And a large chunk of the transitioned flights has Rolls-Royce’s Trent 700 engine. The company expects a 200% jump in CareStore service agreements and fleet contracts in 2022. 

Although this alone will not boost Rolls-Royce shares, it is a positive development that could improve earnings in the upcoming 2022 half-year results, expected on 4 August. 

Perfect new markets

I think Rolls-Royce’s decision to funnel resources into power systems and defence in the absence of air travel was a great business decision. Both sectors are under the spotlight after the Russian invasion of Ukraine. 

Defence budgets are increasing at record levels. The world military expenditure crossed US$2trn for the first time in history this year. And Rolls-Royce’s huge defence order book is a great sign for the business. The company recently signed a £105m contract with the UK government to support its Hawk jet fleet. It also won a contract, alongside BAE Systems, worth over £2bn to improve UK’s nuclear deterrent program amid heightened tensions in the region.

The crude oil crisis has put European renewable energy asset exploration and development into overdrive. And this directly benefits Rolls-Royce’s small nuclear reactor project. Current estimates say the first reactor would enter the power grid by 2029.

My concerns and verdict

These are all huge positives for the company. And defence and energy sectors would largely remain unaffected by a recession, given their importance. But, Rolls-Royce shares do come with some red flags as well. The £5.1bn debt could increase considerably if travel recovery is stalled due to a recession. And Rolls-Royce shares look expensive, despite the 33% decline in 2022, trading at a price-to-earnings ratio of 57 times.

But I think Rolls-Royce, currently trading as a penny stock, is a great growth option for my portfolio. The company has used its downtime to restructure well and is now an exciting business with a lot of new projects over the next decade. I will wait to judge investor reaction to the half-yearly report in August before making an investment. 

Should you invest £1,000 in Rolls-Royce right now?

Before you consider Rolls-Royce, you’ll want to hear this.

Motley Fool UK's Director of Investing Mark Rogers has just revealed what he believes could be the 6 best shares for investors to buy right now… and Rolls-Royce wasn’t one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 shares that are currently better buys.

All you need is an email address to get started

Suraj Radhakrishnan 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.

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.

More on Investing Articles

Young brown woman delighted with what she sees on her screen
Investing Articles

3 easy actions that could boost my stock market returns

The UK stock market is going through a sticky patch so this Fool is looking for ways to improve his…

Read more »

Hispanic man using laptop in home office and drinking coffee
Investing Articles

Boohoo shares: time for me to admit defeat?

This Fool is nursing heavy losses from his Boohoo Group (LON: BOO) shares. Should he sell up and move on?

Read more »

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

6% dividend yields! 2 cheap UK shares to buy in July

Harshil Patel considers two cheap UK shares paying fairly high dividends. He'd consider them for his Stocks and Shares ISA.

Read more »

Social media and digital online concept, woman using smartphone
Investing Articles

Will Lloyds shares recover in 2022?

Lloyds shares have struggled this year and the looming recession won't help. But I'd still buy them today.

Read more »

Two hands holding champagne glasses toasting each other with Paris in the background
Investing Articles

Can the stock market make me rich even now?

Here are three ways I'm coping with the stock market's recent bout of weakness and aiming to build wealth in…

Read more »

Cogs turning against each other
Investing Articles

3 top investment trusts to buy right now

Investment trusts offer a wide range of options for investors. And in troubled times, they provide some safety through diversification…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Why hasn’t the FTSE 100 crashed in 2022?

The catastrophic events of 2022 have left investors around the globe fearing the worst for stock markets. And some have…

Read more »

Trader on video call from his home office
Investing Articles

2 inflation-resistant FTSE 100 stocks to buy today

Soaring inflation could dent my returns if I don't take care. Here are two top inflation-resistant FTSE 100 stocks I'd…

Read more »