The last few years have been a rollercoaster journey for Rolls-Royce (LSE: RR) shares. Five years ago, a share in the aircraft engine maker would have cost me just shy of 300p. Today, I could snap one up for 204p, or 30% cheaper.
Despite this, when looking at the last 12 months, the share price has only headed in one direction. And that’s upwards.
In this timeframe, its returned a staggering 177%. And if I’d bought Rolls-Royce stock at the beginning of 2023, I would have more than doubled my money!
So, have I missed the boat? Or with this momentum, is now the right time to buy?
Cost-cutting mission
The company’s still-new CEO, Tufan Erginbilgic, is on a mission to cut costs as he continues to put in place his long-term strategy for the company. As part of this, it was revealed that the manufacturer is set to cut around 2,500 jobs from its global workforce of over 40,000. With that, Erginbilgic hopes to reduce the duplication seen across several areas of the business including its civil, defence, and power divisions.
Its most recent results showed underlying revenues had jumped to around £7bn, or a third higher than the year before, highlighting a strong start to the business’s “multi-year transformation programme”.
Incoming dividend?
As I slowly continue to build my investment pot, I’m always on the lookout for opportunities that can provide me with some sort of passive income. And while Rolls-Royce currently doesn’t offer a dividend yield, there’s certainly potential in the future.
This is because the business recently started generating free cash flow again. And with it raising its full-year guidance to a target of between £0.9bn and £1bn, it may look to return some extra value to shareholders.
My concerns
Despite all the above, I have some concerns about the stock. First, while it’s made strong efforts to reduce debt, the firm still sits on a pile of around £2.8bn. This alone wouldn’t be a major worry. However, the fact that a large proportion of this is due by 2025 does make it more of an issue.
The company also operates on thin margins compared to its competitors. With the volatility we’ve seen in the global airline industry in recent times, this could present problems. Furthermore, with inflation continuing to stick around, rising costs could eat away at its bottom line.
Time to buy?
So, after its impressive performance, should I be looking at buying some shares?
Well, I’m not too sure. Its cost-cutting plans for long-term growth show the company may be heading in the right direction to become more efficient. But I see too many risks. And while the potential of a dividend is there, I wouldn’t buy Rolls-Royce shares for passive income alone.
In the weeks and months to come, I’ll be tracking Rolls-Royce. But I won’t be buying the stock today. Right now, I think there are other UK shares out there that look more attractive.
