Is it time for me to change my tune about Rolls-Royce shares?

This Fool has steered clear of buying Rolls-Royce shares. But after its recent performance, he’s reconsidering his stance. Here’s why.

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I’ve been watching Rolls-Royce (LSE: RR) shares closely from the sidelines in recent months. However, I’ve opted against opening a position in the FTSE 100 aviation stalwart.

After what’s been an impressive performance, I’ve been waiting to see if the stock got pulled back. If it did, my plan was to pounce and snap up some shares.

But my plan hasn’t quite worked out. That’s especially after the stock rose another 8.5% on 22 February off the back of its 2023 results.

Is it now time for me to finally buy?

The for

There’s certainly a case to be made.

2023 saw Rolls more than double its underlying operating profit to £1.6bn compared to £652m in 2022. On top of that, the group reported a record free cash flow of £1.3bn.

A large part of this success can be pinned down to the turnaround strategy that new CEO Tufan Erginbilgiç has executed. Since taking the helm at the beginning of last year, he’s made great strides in his plan to return Rolls to the blossoming business it once was.

This started with job cuts back in the tail end of 2023. As part of his ambitions, he sees the business generating up to £2.8bn in profits by 2027. Erginbilgiç plans to turn Rolls-Royce into a “high-performing, competitive, resilient and growing” business.

The against

The firm has made good progress. But I’m still cautious.

Firstly, it still has £2bn in debt on its books. Granted, that’s a steep drop from the £3.3bn recorded at the end of 2022. But with interest rates still elevated, it’s something to consider.

In addition, Rolls’s margins remain under pressure due to supply chain issues. While post-pandemic demand for flying has soared, the industry has struggled to keep up. Erginbilgiç stated the firm expects to continue facing supply chain issues in 2024.

There is also the threat that the stock gets pulled back. It has performed tremendously in the last 12 months or so. However, there’s the risk investors have been getting carried away. If market hype has driven its price up in recent times, I’m worried it may come tumbling down.

It has made a strong recovery from its 2020 lows. But with long-haul flying hours forecasted to make a full recovery in 2024, growth after this year could experience a slowdown. That would no doubt upset shareholders.

The verdict

Even so, I’m more and more tempted to buy Rolls shares. Especially after its impressive 2023 performance.

Erginbilgiç has a bold vision for the business. And while it’s still in its early stages, he’s certainly delivering on his promises.

There’s a lot of hype surrounding the stock. And I am wary that we could see short-term swings in its share price going forward. That said, I buy for the long hold. And with Rolls, I do see long-term potential. In the weeks ahead, it’s looking more likely I’ll finally buy some shares.

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.

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Rolls-Royce Plc. 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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