My Rolls-Royce Holdings (LSE:RR.) shares are doing fine.
But that’s because I bought them within the past year.
Since early 2023, Rolls-Royce has done great. It’s been all over the news with a share price that simply won’t stop climbing. Recently appointed managing director Tufan Erginbilgiç has been praised for his cultural changes in the firm, which many believe have driven the growth.
With shares up 300% since his appointment 18 months ago, his aggressive, hands-on style and cost-cutting approach appear to be working. Back then, the Rolls-Royce share price was trading for less than a pound.
Now, the shares are sitting at an impressive £3.60.
But a decade ago?
Investors who bought in 10 years ago are probably not sharing in the current excitement. For them, the share price will need to increase a bit before they’re back in profit.
If I’d bought 1,000 Rolls-Royce shares in January 2014, I’d be out of pocket by almost £1,000.
So the question is, while Rolls-Royce is doing great at the moment, will it ever revisit the golden years of mid-twenty-teens?
Please note: due to a stock split in 2015, the Rolls-Royce share price is displayed differently on certain sites (here, we display the adjusted closing price). This does not affect the overall value of shares purchased at any time.
The future of flight
Erginbilgiç’s new management style is certainly a step in the right direction. But real change could depend on external factors — namely, Rolls-Royce’s client base and the broader industry it serves.
Recent 2023 full-year results revealed record free cash flow and a 245% increase in underlying profits. This was despite what Erginbilgiç has described as “a volatile environment with geopolitical uncertainty”.
But I believe some of these same factors have been a driving force behind Rolls-Royce’s growth. At least, in so far as increased military spending on the back of ongoing conflicts in Ukraine and the Middle East.
Naturally, there’s also been more demand for jet engines following an increase in air travel since the pandemic.
So… clear skies ahead?
Not exactly.
Despite recently returning to profit, Rolls-Royce is still operating with negative shareholder equity. This is a significant risk that can’t be ignored, even with a 12.5 price-to-earnings (P/E) ratio that is better than most competitors.
But it seems to me Rolls-Royce is on to a good thing for now.
It’s likely that early 2014 investors who paid upwards of £4.40 a share will see their investment in the green soon
Aggressive new management strategies have proven successful for corporations in the past (here’s looking at you, GE.). It’s a good start and increased defence spending will likely continue driving demand for jet engines for the foreseeable future.
But will air travel remain uninterrupted if another virus outbreak occurs? Your guess is as good as mine. Rolls-Royce shares lost almost 90% of their value when the pandemic hit in early 2020. A repeat of a similar situation could take it back down below £1 a share.
Do I think that will happen? No.
And I think the company would be better prepared if it did.
One thing I do know: humans love machines, and machines need engines.
So until AI comes along and develops a better way to make planes fly, I’ll be holding on to my Rolls-Royce shares.
