Up 147% in a year, Rolls-Royce shares are flying! Can they keep going?

Rebounding from the pandemic well, Rolls-Royce shares are on a roll! What’s next? Could they continue their ascent or will they be pulled back?

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Image source: Rolls-Royce plc

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I’ll admit I was one of the naysayers during the pandemic who doubted whether Rolls-Royce (LSE: RR.) shares could ever bounce back.

Now I’m kicking myself that I didn’t buy some shares way back then.

Let’s look forward instead. Could the Rolls-Royce share price continue its impressive rise and is there still a buying opportunity for me?

What’s happened so far

When the aviation industry ground to a shuddering halt back in 2020, Rolls-Royce saw performance fall off a cliff. It had to borrow extensively to keep the lights on.

Since then, the pandemic and its woes have eased, allowing aviation to open up once more. Specifically for Rolls-Royce, a new CEO, Tufan Erginbilgiç, has overseen a major overhaul in strategy. This has reaped excellent rewards to date. Part of this involved offloading poor performing divisions, and driving efficiencies in order to improve performance, and an ailing balance sheet.

He’s helped losses turn into profits, performance has generally been on the up, and the outlook ahead is much brighter. Crucially, for me, the balance sheet is on a much better footing.

What could happen next?

Firstly, the surge in global air travel surpassing pre-pandemic levels could be one aspect driving the shares upwards even more so. Another would be continued increased defence spending. This is currently at its highest levels ever, which bodes well for firms like Rolls-Royce.

Next, capitalising on growth markets such as China and Africa could be key to boosting performance and shares as well. Finally, if all goes well, we could even see the return of a dividend, which I’m confident will do wonders for the share price, and investor sentiment.

Conversely, there’s no guarantee any of the above will happen. Plus, if these events do occur, it won’t necessarily be smooth sailing. One aspect that makes me wonder if the shares could crash is that of historical mixed performance. However, I do understand that past performance is not a guarantee of the future.

Plus, the firm is relying on a lot of external events to go in its favour, which could be tricky. For example, in order to make the most of growth in China, the Chinese economy must get out of its current malaise. On top of this, geopolitical tensions could provide a performance boost on one hand in terms of defence spending, but hurt demand for air travel.

My verdict

Personally, I think the shares can continue their impressive rise for some time yet as the firm seems to be on a roll on all fronts. This includes how the business is now being run internally, and external events being favourable too.

From an investment perspective, the shares look cheaper than those of competitors in its market. They trade on a price-to-earnings ratio of 13.

I’d still be willing to buy some shares when I next can. I’ll have to live with the fact that I didn’t buy any sooner. Either way, I’m invested in the journey and story of Rolls-Royce, a bit like when I discover a new series I like and can’t prise myself away from discovering what’ll happen next!

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.

Sumayya Mansoor 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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