The Rolls-Royce share price looks great, but is this company is better value?

The Rolls-Royce share price has been flying in recent years, but with plenty of competition in the sector, is another company potentially better value?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Rolls-Royce plc

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.

Rolls-Royce has been a standout performer in the FTSE 100 this year, with the share price surging over 200% in 2024 so far. However, while Rolls-Royce basks in the spotlight, I think it’s possible another aerospace leader, Boeing (NYSE: BA), might offer an even more compelling investment case, despite some recent challenges. Let’s take a closer look.

A turbulent few years

Boeing, the world’s largest aerospace company, has faced significant challenges in recent years. From the grounding of it’s 737 MAX planes over safety fears, to pandemic-related disruptions, the company’s share price has declined by over 60% in the past five years. However, investing is often about going against the trend, and this substantial drop may present an attractive opportunity.

Created with Highcharts 11.4.3Boeing PriceZoom1M3M6MYTD1Y5Y10YALL1 Sep 201930 Sep 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

A discounted cash flow (DCF) calculation suggests that the shares are trading at approximately 40.1% below estimates of fair value. Of course, there’s no reason to suggests the current negative trend in the shares will change any time soon. But it gets me interested in the long-term potential of an investment.

Should you invest £1,000 in British American Tobacco right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if British American Tobacco made the list?

See the 6 stocks

Valuation estimates should of course be approached with some caution. I’d suggest such a large discrepancy between the current price and estimated value warrants caution. There’s plenty of potential, but plenty of risk for this to worsen if results fail to meet expectations.

Eyes on the future

Despite the firm’s recent disappointments, I think the future outlook appears more promising. Analysts forecast annual earnings growth of 67% for the next five years, surpassing many peers in the aerospace and defence sector. This includes Rolls-Royce, which forecasts a decline in annual earnings over the coming years.

Of course, it’s crucial to acknowledge the risks. The company carries a substantial debt burden, with it’s $57.7bn debt not well covered by operating cash flow. With a debt-to-equity ratio of -320.7%, this could pose challenges if the company faces further unexpected setbacks.

Additionally, shareholders have experienced dilution over the past year, which is generally viewed negatively by existing investors. Although the number of shares only increased by 2.1%, management will need to demonstrate improved financial discipline to regain investor confidence.

More appealing than Rolls-Royce?

While the Rolls-Royce’s share price has been impressive of late, I think it’s worth considering whether an investment in the stock still offers good value after such a significant run-up. Boeing, despite its challenges, could easily offer a more attractive risk-reward profile.

Boeing’s price-to-sales (P/S) ratio stands at 1.3 times, compared to Rolls-Royce’s 1.4 times. This suggests that investors are paying slightly less for sales compared to Rolls-Royce. Moreover, I’d argue that Boeing’s larger scale and more diversified business model provide additional layers of resilience and growth potential.

To me, both companies represent intriguing opportunities in the aerospace sector. Rolls-Royce has demonstrated an impressive turnaround, but much of this positive news may already be reflected in the shares. Boeing, while still facing challenges, could offer better value at current levels, with significant potential if the company can execute on its growth plans and operational improvements.

Many will continue to focus on Rolls-Royce, but I’ll be watching Boeing’s share price, and buying at the next chance I get.

Should you buy British American Tobacco now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

Gordon Best has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

5 stocks for trying to build wealth after 50

Inflation recently hit 40-year highs… the ‘cost of living crisis’ rumbles on… the prospect of a new Cold War with Russia and China looms large, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

See the 5 stocks

More on Investing Articles

Investing Articles

2 cheap FTSE 100 and FTSE 250 shares to consider for an ISA before 5 April!

These FTSE 100 and FTSE 250 shares are on sale today! Here's why long-term Stocks and Shares ISA investors should…

Read more »

Investing Articles

How I’m building a new second income for 2035

Millions of us invest for a second income. Here are the steps Dr James Fox is taking in order to…

Read more »

Investing Articles

At a 52-week low but forecast to rise 73%! Is this growth share the FTSE’s top recovery play? 

This FTSE 100 growth share has taken an absolute beating over the past two years but Harvey Jones says the…

Read more »

Investing Articles

This FTSE 250 share offers a juicy 9.8% yield. Will it last?

This well-known FTSE 250 share has a percentage dividend yield approaching double digits. Should Christopher Ruane add the income share…

Read more »

Investing Articles

Is a £333,000 portfolio enough to retire and live off passive income?

A third of a million pounds can generate a serious amount of passive income, but relying on this sum alone…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Here’s why Nvidia stock fell 13% in March

The Nvidia stock price rise was looking unstoppable. Should investors now be wondering if the same might be true of…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing For Beginners

Why FTSE 100 investors should pay attention to ‘Liberation Day’

Jon Smith explains why the upcoming tariff announcement from across the pond could have an impact on the FTSE 100,…

Read more »

US Stock

It’s ISA deadline week! Here’s my 3-step game plan

Jon Smith tries to calm the hype around the last minute ISA rush to buy stocks and explains why he's…

Read more »