The blistering Rolls-Royce (LSE: RR) share price recovery shows how an ailing company can skyrocket if conditions are right.
The FTSE 100 aircraft engine maker’s shares crashed more than 80% thanks to a bribery scandal, Covid lockdowns, and other nasties. Investors who spotted an opportunity two years ago have made a staggering 518% return.
Latecomers have seen their shares soar almost 150% over 12 months but with Rolls-Royce shares now looking fully priced at 36.19 times earnings, the glory days appear to be over.
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On 6 August, JP Morgan hiked its Rolls-Royce price target to 535p. But with the shares trading at 496.8p, that’s growth of just 7.7% from here.
FTSE 100 star
The recovery has surely run its course but that didn’t stop me topping up my stake at 455p during the recent market dip. I’m up almost 10% since but that’s neither here nor there. I’m holding with a minimum 10-year view.
There are risks, of course. CEO Tufan Erginbilgiç has flagged up supply chain issues. Its proposed fleet of mini-nuclear reactors awaits government approval. A US recession could hit flying hours. If Erginbilgiç undershoots targets, the selloff could be brutal. I’ll stick with what I’ve got and hunt for growth opportunities elsewhere.
I’m wondering if I’ve found one in ailing James Bond car maker Aston Martin Lagonda (LSE: AML). I’ve been waiting for the FTSE 250 stock to rev into action for years. Instead, it just seems to go backwards. At speed.
The Aston Martin share price is down a staggering 95.83% over five years. Even Rolls-Royce didn’t fall that far. Over one year, it’s down 55.85%. Talk about a burning platform.
Yet the board did unveil a pretty positive set of half-year results on 24 July. While wholesale volumes dropped 32% to 1,998 units, that was largely expected as the company transitions to its Vantage luxury supercar and upgraded DBX707 models.
Aston Martin Lagonda is so risky
Average selling prices accelerated 29% to £274,000, driven by increased Specials sales and enhanced personalisation options. And while revenues fell 11% to £603m, the group still posted a £233m profit, down 1% year on year.
The board remains confident of hitting full-year targets with volumes, profits, and margins set to rise in a big second-half recovery.
I don’t know whether to be pleased that Aston Martin successfully financed in the first quarter, or disappointed that it had to do so. Again.
Net debt stood at £1.19bn on 30 June, bang in line with today’s £1.2bn market cap. Ouch. The debt-to-equity ratio is high at 1.79. On the plus side, that’s down from 3.86 in June 2022. Let’s see what the chart says.
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The board has to invest £2bn between 2023 and 2027 to drive growth and the transition to electrification (where it’s trailing badly). Dividends could be years away.
Brokers are optimistic, though, setting an average 12-month price target of 253.2p, up 69.9% from today’s 150.6p. I quite fancy that.
Former Rolls-Royce CEO Warren East had largely steadied the ship before Erginbilgiç took over. In contrast, Aston Martin remains decidedly rocky. I’m still tempted to jump on board, though. I’d hate to miss out if it does take off. I won’t know if I’m brave enough until I hit the ‘buy’ button.
