I think now is the time to buy this FTSE 100 growth stock!

Rolls-Royce recently turned a profit for the first time in years. Here’s why I think the growth stock could be a solid addition to my portfolio.

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Rolls-Royce (LSE: RR) shares have continued to struggle over the past few months, a trend the company has endured since the start of the pandemic. Year to date the stock is down 35% and over a longer 12-month span it’s down 24%. However, I think that at the current price of 83p, now could be a great time to buy the stock for long-term growth.

Positive developments

When Rolls-Royce announced its FY21 results, they showed the firm had returned to profit after making a loss in 2020. Coming in at a modest £10m, the profitability marked a steep recovery from the £4bn loss the year before. More recently, Rolls released its H1 2022 results, in which I also saw some positives. Although it reported a loss for the period, there was a record order intake for Power Systems and a £1.1bn free cash flow improvement. The company also announced that margins are expected to increase throughout the second half of 2022. This should help it deliver a profitable full year.

In addition to this, Rolls is making great progress in delivering on some of its key strategic targets. For example, the disposal of subsidiary ITP Aero has now received regulatory clearance and is expected to happen soon. This will help free up cash and ease the pressure of the £5bn debt on the company’s balance sheet. It has already delivered on promises to cut costs by £1.3bn in 2021. This was a pivotal move to help it recover from the pandemic.

There are also several other positive signs for the company. For example, its leading position in small-to-medium nuclear reactor technology. Rolls expects to receive approval for these in mid-2024 and has already received interest from various governments around the world.

Finally, flight numbers are steadily increasing, which is good news for a company that makes most of its money servicing jet engines. For example, large engine flying hours increased 42% in the first half of 2022 compared to 2021, which will help increase the firm’s top line.

Not out of the woods yet

It’s no secret that the macro economy is pitted against growth stocks at the moment. Inflation is reaching sky-high levels – a whopping 12.7% in June in the UK. This is being coupled with an increase in interest rates. As rates rise (as they did again last week in the UK and US) investors can earn a higher risk-free rate. This deters people from investing in speculative assets like growth stocks. Interest rates are expected to rise more throughout the rest of 2022 and beyond. This could inhibit the growth of Rolls’ shares.

Why I’m buying

At 83p, Rolls shares are the cheapest they’ve been for a while. There are macroeconomic considerations to take into account, of course. But taking a long-term view, I think the stock could deliver serious gains. It’s returning to profitability, with a number of exciting projects in the pipeline, so I’m looking at adding Rolls-Royce to my portfolio today.

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 and The Motley Fool UK have 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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