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Is the Rolls-Royce share price too cheap to miss?

The Rolls-Royce share price was decimated by the pandemic, but does this indicate an opportunity in disguise? Saima Naveed explores.

by | Last updated 27 Nov, 2022 | Aerospace

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  • Rolls-Royce is known for its luxury cars and its powerful presence in the defence aero-engine market
  • Rolls-Royce share price plummeted to 38.98p in September 2021
  • The company spent £500 million on the technologically advanced UltraFan engine

Rolls Royce (LSE:RR) is a name not unknown to a majority of us. Its reputation extends from luxury cars to the aerospace and defence sectors. I’ve previously discussed Rolls-Royce’s share price lacklustre performance. But is there a buying opportunity for my portfolio here?

Let’s dig into the company and explore whether the Rolls-Royce share price is too cheap to miss?

The Rolls-Royce share price performance

The shares of £10bn engineering company have enjoyed years and years of stable performance. However, in 2019 it started to wobble. And the pandemic gave fuel to the bearish trends sending the stock plummeting to 86.34p. In fact, Rolls-Royce share price continued its downward journey and dropped to its lowest point of 38.98p in September 2020. Currently trading at 121.02p, the stock has not fully recovered.

Does this mean that it is an opportunity to buy at a low price?

Well, the delay in growth in the whole economy, especially the aviation industry, has pushed the plans of many corporations back by many years. Therefore, I believe, after a certain time, the engineering firm could potentially come around. But it’s far from guaranteed.

What’s new?

2021 was marked by the production and testing of the first UltraFan engine for aeroplanes. Altogether, Rolls-Royce has spent roughly £500m on the development of this engine demonstrator. The technology is expected to be 25% more efficient than existing engines on the market. Given that the entire travel sector is looking to eliminate operating costs, the demand for this new propulsion system could skyrocket over the long term.

Does this indicate that Rolls-Royce and its share price will be crowned the new leader in the aero-engine industry? Maybe, but there is a long journey ahead still.

Recent setbacks

Quite recently, the CEO of Rolls-Royce announced plans to put the UltraFan engine program “on ice” after the engine concludes its testing during the current year. However, the company is searching for industrial collaborations to bring this new technology to the commercial market.

But market analysts have shared grave concerns for the firm. Since the segment of the aero-engineer industry Rolls Royce plans to enter is full of cut-throat competition. Therefore, I doubt any organization will come to its rescue.

What does that mean for the £500m investment in this new technology? It’s unclear. For now, I’m waiting for more information to be released by management before speculating on this means for the Rolls-Royce share price.

Final thoughts on the Rolls-Royce share price

With travel restrictions introduced in 2020, the aerospace industry suffered a huge blow. As a result, the company was generating losses and exhausting its cash flows. But with the operating environment drastically improving, I believe the company could soon get back on its feet.

So, to me, at least, the Rolls-Royce share price is looking rather cheap. And I’m considering adding the business to my portfolio.

Learn more about Rolls-Royce…

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Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and, therefore may differ from the opinions of analysts in The Money Cog Premium services.

Written By

Saima Naveed

Saima spent the early days of her career advancing the finance office of a prominent manufacturing business. After taking a sabbatical, she decided to use her expert knowledge and apply it to the stock market. Now, 10 years later, she manages a substantial portfolio built using detailed and thorough analysis.

Outside The Money Cog, Saima is an avid supporter of empowering women in the workplace. She is currently working very closely with Women of Wonders Pakistan to help other women achieve their career goals.

Current Holdings

PSX: CENERGY, PSX: FFL, PSX: PCAL, PSX: PKGS, PSX: SHEZ, PSX: SIEM

Edited & Fact Checked By
Zaven Boyrazian MSc

Zaven has worked in several industries throughout his career, from aircraft factories to game development studios. He has been actively investing in the stock market for the better part of a decade, managing over $1 million across multiple portfolios.

Specializing in corporate valuation, Zaven employs a modern take on the principles set out by Benjamin Graham to find new opportunities at fair prices.

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