UK share prices frequently soften in the summer months as trading becomes more subdued the volume of shares bought and sold reduces. But canny (or lucky) investors who bought into Rolls-Royce Holdings (LSE: RR) during the warm weather will be sitting pretty today. That’s because the Rolls-Royce share price has soared since mid-July.
The share price is booming
A year ago, the share price was very down in the dumps. On 30 October 2020, it hit its 52-week intra-day low of 64.86p. But then came ‘Vaccine Monday’ (7 November 2020), when stock markets worldwide soared on news of effective Covid-19 vaccines. RR shares roared like one of its jet engines, ending 2020 at 111.25p. After zigzagging along, they drifted down to close at 87p on 19 July. But then they soared again, closing at 147.48p on 27 September. That’s a handsome return of 69.5% in just over two months. Wow.
However, since peaking last month, the Rolls-Royce share price has declined over the past four weeks. On Friday, the shares closed at 135.1p, down 12.38p (-8.4%) since 27 September. Even so, RR is up 6.4% in one month, ahead by 32.8% in six months, and up 61.6% over one year. What’s more, since bottoming out at 87p on 19 July, this stock has soared by 55.3%. That’s a terrific return in a little over three months. But after such a strong surge, can this popular share keep rising?
What what might support RR?
During the worst of the coronavirus lockdowns, air passenger miles collapsed by more than four-fifths. Since Rolls-Royce makes much of its money from routine servicing and maintenance of aircraft engines, grounding planes blew up its business model. But the famous firm has divisions covering Civil Aerospace, Defence, Power Systems, Electrical, and Nuclear engineering. Hence, it has a broader business model than just aircraft engines.
Also, Rolls-Royce has been lifted by two recent deals. First, the group sold ITP Aero (a Spanish aircraft-engine manufacturer) for €1.7bn (£1.5bn). Second, it signed a 30-year contract to supply F130 engines for the US Air Force’s B-52 Stratofortress bombers, worth up to $2.6bn (almost £2bn). The first deal will help to shore up RR’s Covid-damaged balance sheet, while the second will improve future cash flow and profits.
Nevertheless, the group is in much weaker shape than it was in, say, August 2018, when the Rolls-Royce share price briefly topped 375p. Also, the firm is worth £11.3bn today, less than a third of its value in December 2013. Furthermore, Rolls-Royce set a target of generating £750m in free cash flow in 2022. The group has since admitted that it will miss this financial mark.
Would I buy RR?
I don’t own Rolls-Royce shares at present. For me, RR is a binary bet on a post-Covid-19 recovery to a brighter future. If we do win the war against coronavirus, then life might just get back to normal. And with huge cash savings amassed during 2020-21, consumers would be delighted to fly again, especially on long-haul holidays. This would be great news for the Rolls-Royce share price. But if new Covid-19 variants keep emerging, global growth might take another step back — bad news for this business. Hence, given that RR is such an uncertain gamble, I’m giving its shares a miss for now. I’d rather see its next trading statement before climbing aboard.
Cliffdarcy 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.
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