Before the infamous Brexit vote which took place on 23 June 2016, Rolls-Royce (LSE:RR) shares were trading for 207p.
Today, Rolls-Royce shares are changing hands for 271p. So, over the seven years, the stock is up 30.9%.
Thus, a £1,000 investment then would be worth £1,309 today. I would have also received around £60 in the form of dividends — but nothing since 2019.
That’s not a bad return. It’s about 5.2% annually, which is less than I’m looking to achieve.
Nonetheless, it’s worth remembering that shares in engineering giant have surged over the past 12 months — up 190%.
As such, I think I’d just be glad to see my investment out of loss territory.
Post-Brexit Rolls
Interestingly, while many shares suffered in the aftermath of the Brexit vote, Rolls-Royce shares pushed up in the years until the pandemic. Instead, it was the pandemic that had a profound impact on the Rolls-Royce share price.
Restrictions on air travel directly affected Rolls-Royce, a prominent supplier of aircraft engines. With reduced flying hours, demand for new aircraft and maintenance services, Rolls-Royce experienced a sharp decline in revenue, prompting a subsequent drop in its share price.
The company, known for its commitment to innovation and engineering excellence, embarked on a strategic restructuring plan to navigate the turbulent times. Rolls-Royce aimed to streamline its operations, cut costs, and adapt to the evolving needs of the aviation sector.
Helped by a stronger than expected recovery is air travel, this strategy appears to be paying off, with successive revenue beats and a surging share price.
Where next?
I owned Rolls-Royce shares for much of the rally, but sold and took my gains. I now realise that was a mistake and I’m looking for a new entry point.
Of course, I’m wary that more demand shocks, in the form of fuel price spikes or epidemics, would undoubtedly be bad for business.
However, the big selling point is that Rolls-Royce shares trade at just 0.5 times price/earnings-to-growth (PEG).
The PEG ratio is a financial metric that provides a more comprehensive view of a company’s valuation by taking into account its earnings growth.
It is calculated by dividing the Price-to-Earnings (P/E) ratio by the annual earnings per share (EPS) growth rate.
A PEG ratio of one suggests that the stock is fairly valued, while a ratio below one may indicate that the stock is undervalued relative to its expected growth, and a ratio above one may suggest overvaluation.
For me, this suggests the share price will continue to rise. In fact, the metric infers that the stock is undervalued by half.
It may be optimistic to assume Rolls-Royce shares will trade for anywhere near 550p or 600p anytime soon.
However, it’s certainly possible. UBS noted in an upgrade earlier in the year that the stock could reach 600p under its most optimistic scenario.
