3 positive signs for the Rolls-Royce share price

Rolls-Royce has been doing well of late with the share price responding positively. And it seems new reasons for optimism are appearing daily.

| More on:
Businesswoman analyses profitability of working company with digital virtual screen

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Rolls-Royce (LSE:RR) share price is climbing again, up another 10% over the last month. And I think there could be more to come. 

I can see at least three positive signs for the company in the near future. And if I’m right about that, the stock could have further to rise. 

Travel demand

Around 45% of Rolls-Royce’s revenues come from its Civil Aerospace division. So strong travel demand is probably the most important thing for both the business and the stock. 

The CEO of Delta Airlines said this week that demand for travel has never been stronger. And this is especially true of international travel.

According to the company, if it had more aircraft, it would be able to fill them. The issue the industry is facing is that it is constrained by supply, not by demand. 

This is extremely encouraging for Rolls-Royce. Its engines are primarily used in long-haul aircraft and the more hours they spend flying, the more money it makes servicing them.

Winning contracts

Another positive sign is the fact the company’s winning contracts, especially in defence. Over the last month, Rolls-Royce has been attracting new business in a few different areas.

One is in naval propulsion. Last week, the business announced it had won a contract to supply engines for the latest models in Japan’s destroyer programme.

Another is in aviation. Rolls-Royce also recently announced it has been selected to work on propulsion for the latest US presidential jet aircraft. 

The impact of these specific projects on the firm’s bottom line might be small. But they show the company’s position at the forefront of aerospace technology’s still strong.

Interest rates

Earlier this week, the European Central Bank decided to cut interest rates for the first time in five years. If the US and the UK do the same, this could be very positive for Rolls-Royce.

One is that it might indicate that further rate cuts are coming from the Federal Reserve and the Bank of England. This could lead to increased spending in key areas for the company.

Another is that the business still carries a lot of debt from the pandemic. This is coming down, but the chance to refinance it at lower rates would be helpful for cash generation.

It’s not just Rolls-Royce that stands to benefit from lower interest rates. But there’s a clear reason why the company would benefit more than others.

Still a buy?

The Rolls-Royce share price is definitely riskier than it has been. And investors have seen just how vulnerable the business can be to even a short-term disruption to travel.

This could be brought on by several things – an economic downturn, a terrorist act, or even another pandemic. Any of these could interrupt the company’s recovery and hit the stock.

Risks are both genuine and inevitable, but the question for investors is whether there’s enough to be positive about to justify considering the stock. And I think there might be.

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.

Stephen Wright 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.

More on Investing Articles

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Buying 8,617 Legal & General shares would give me a stunning income of £1,840 a year

Legal & General shares offer one of the highest dividend yields on the entire FTSE 100. Harvey Jones wants to…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

£25k to invest? Here’s how I’d try to turn that into a second income of £12,578 a year!

If Harvey Jones had a lump sum to invest today he'd go flat out buying top FTSE 100 second income…

Read more »

Union Jack flag in a castle shaped sandcastle on a beautiful beach in brilliant sunshine
Investing Articles

2 lesser-known dividend stocks to consider this summer

Summer is here and global markets could be heading for a period of subdued trading. But our writer thinks there…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Here’s how I’d aim to build a £50K SIPP into a £250K retirement fund

Our writer outlines the approach he would take to try and increase the value of his SIPP multiple times in…

Read more »

Investing Articles

9.4%+ yields! 3 proven FTSE 100 dividend payers I’d buy for my Stocks and Shares ISA

Our writer highlights a trio of FTSE 100 shares with yields close to 10%. He'd happily pop them into his…

Read more »

Mixed-race female couple enjoying themselves on a walk
Investing Articles

Are Raspberry Pi shares a once-in-a-lifetime chance to get rich?

With Raspberry Pi shares surging after a successful IPO, could this UK tech startup offer a long-term wealth creation opportunity…

Read more »

Newspaper and direction sign with investment options
Investing Articles

Huge gains and 9% yields: why now’s an amazing time to be a stock market investor

The stock market’s generating fantastic returns in 2024. Whether you're looking for gains or income, it’s a great time to…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

This steady dividend payer looks like one of the best bargain stocks in the FTSE 100

A yield of 4.7% and a consistent dividend record make this FTSE 100 company look like good value in an…

Read more »