The Rolls-Royce (LSE: RR.) share price has been on a roll in 2023. So much so that the engine-maker is the best performing stock in the FTSE 100 so far this year.
So with last month’s profit upgrade giving investors even more to cheer about, could now be a good time for me to buy some shares in anticipation of further share price growth in the long term? Let’s take a look.
Pandemic puts the breaks on success
Rolls-Royce earns money by producing aeroplane engines for large, long-haul aircraft.
A substantial portion of its revenue comes from servicing and maintaining these engines. Moreover, business is dependent on the number of hours they spend in the air.
It therefore comes as little surprise that Rolls has been grappling with many struggles over recent years. That’s particularly due to the sharp downturn in the aerospace industry amid the Covid-19 pandemic.
Reduced air travel and demand for new aircraft led to a decrease in orders for engines and maintenance services. This severely affected the company’s revenue and resulted in the accumulation of a substantial debt pile.
As such, I’m acutely aware that debt levels remain a key risk moving forward. That’s even despite successful efforts that are helping ease the pressure.
After all, if demand was to slump again for any reason, Rolls-Royce would find itself in a perilous financial position.
Back to firing on all cylinders
Nonetheless, the group’s post-pandemic recovery has been nothing short of remarkable.
Engine flying hours are on their way back to pre-pandemic levels, productivity improvements are evident across major divisions and commercial volumes are picking back up.
This led to the reporting of an impressive set of financial results at the beginning of August, with first-half underlying revenue rising from £5.3bn to £7bn.
The strong performance was powered by increases across the civil aerospace, defence and power systems segments of the business.
Additionally, underlying operating profit jumped from £125m to £673m and free cash flow rose from an outflow of £68m to an inflow of £356m.
Given my concerns, I was encouraged to hear that net debt improved from £3.3bn to £2.8bn.
Unsurprisingly, the shares climbed further on the back of the results.
But despite rocketing in value to over 200p, the shares remain some way off their all-time high of around 426p back in 2014.
Final verdict
All in all, I’m really liking the position Rolls-Royce is in at the moment.
It has a strong portfolio of products and technologies in growing end markets and has secured key contracts that look set to create future value and profitable growth.
After an impressive start at the helm, I’m also confident in CEO Turfan Erginbilgic’s ambitious leadership of the company.
If Rolls-Royce can succeed in implementing its long-term strategic plan, it will be well-positioned to continue delivering a strong performance as a competitive, resilient, and growing business.
For this reason, despite being over 150% more expensive than at this time last year, I still think Rolls-Royce shares could present significant value in the long run.
Ultimately, if I had some spare cash, I’d hoover some up for my own portfolio and aim to hold them for the next 10-20 years.
