The Motley Fool

This is what I’m doing about the Rolls-Royce share price

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.

Rolls-Royce's business aviation engine, the Pearl 700
Image source: Rolls-Royce plc

It’s perhaps no surprise to see the Rolls-Royce Holdings (LSE: RR) share price still struggling for liftoff. The FTSE 100 company has failed to rally like many other cyclical UK shares as the continuing Covid-19 emergency keeps travel restrictions in place in many regions.

Rolls-Royce’s share price has advanced just 8% over the past 12 months. That’s significantly below the 15% rise the broader FTSE 100 has enjoyed in that time. But are UK share investors missing a trick by not buying in?

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Why Rolls-Royce’s share price could fly

There are several reasons why Rolls-Royce could soar in the second half of 2021. These include:

#1: A fresh decline in Covid-19 cases as vaccine programmes continue. This would lead to airlines taking to the skies en masse again, allowing Rolls-Royce’s engines to start clocking up air miles again and brightening the long-term demand outlook for its hardware. Yesterday, Germany loosened curbs for travellers from several countries and it’s thought other European countries could follow its lead in the days and weeks ahead.

#2: Divestment activity continues. A banged-up balance sheet is one of the reasons why Rolls-Royce’s share price has failed to ignite. The engineer has previously said it expects net debt to balloon to £4bn by the end of this year. So it has to get busy with asset sales to repair investor confidence. Happily, the business said it was “progressing well on our disposal programme” when it last updated the market in May.

#3: Cost-cutting actions impress. News on disposals will be keenly watched when Rolls-Royce releases half-year financials on 5 August. So will details on the FTSE 100 firm’s planned £1.3bn worth of annualised cost savings (“good progress” has been made with cost reductions, Rolls-Royce recently said). Any positive news on either front could drive the company’s share price much higher.

A Rolls-Royce employee works on an engine

However…

All that said, there are clearly big risks to Rolls-Royce’s share price too. Perhaps the most obvious is the ongoing public health emergency and what this will mean for the reopening of the aviation industry.

Despite vaccine rollouts, the number of global coronavirus cases is again rising. The emergence of the Delta variant is responsible for this most recent uptick. And the outbreak of other variants since this particular edition became widespread is casting concern for the airlines — and by extension Rolls-Royce — for further down the line.

This is, of course, particularly dangerous for the FTSE 100 firm, given its enormous debt pile. Sure, August’s financials might show encouraging progress on asset sales and cost-cutting. But this will likely count for little if signs emerge that travel barriers are set to remain in place, or possibly even tighten.

The Rolls-Royce share price doesn’t look that cheap, in my opinion, given these dangers. The firm is expected to bounce back into profit next year. But, at a current price of 102p, it commands a high P/E ratio above 30 times for 2022.

I’m simply not prepared to risk my hard-earned cash on such an expensive and high-risk UK share.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Royston Wild 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.