The past 12 months have been brutal for owners of Rolls-Royce (LSE: RR) shares. Indeed, this FTSE 100 stock has been a disaster since Covid-19 sent global stock markets crashing in spring 2020. But after losing the majority of its peak valuation, could there be hidden value in Rolls-Royce stock?
The collapse of Rolls-Royce shares
Back in August 2018 — long before Covid-19 reared its ugly head — Rolls-Royce shares were flying high. On 3 August 2018, they closed a smidgen above 375p. As I write on Thursday afternoon, they stand at 75.53p. Thus, they have collapsed almost four-fifths (-79.9%) from August 2018’s high-water mark. Crikey.
Thanks to the damage wreaked by coronavirus, this popular stock has crashed hard. Here’s how it has performed over six different timescales:
Five days
4.8%
One month
9.2%
Six months
-8.3%
2022 YTD
-38.4%
One year
-43.6%
Five years
-77.2%
Over the past half-decade, the stock of this great British engineering firm has crashed by more than three-quarters. Also, Rolls-Royce shares have lost almost two-fifths of their value in the past 12 months. Yet some analysts warn that things might get worse for the group before they get better.
Is Rolls-Royce heading for stormy weather?
Along with defence, a large slice of Rolls-Royce’s income comes from its Civil Aerospace arm. This has benefited from surging passenger miles flown as demand for foreign travel recovers. But European consumers are struggling with soaring inflation, sky-high energy and fuel bills, and rising interest rates. As consumer confidence plummets, I suspect that many millions of foreign holidays will be ditched due to the ongoing cost-of-living crisis.
Then again, innovative developments in other Rolls-Royce divisions might energise future revenues. For example, the company’s plans to build nuclear-powered small modular reactors (SMR) are gaining momentum. The group is also entering the market for hydrogen-fuelled engines, but these blue-sky projects will be years in the making.
I might have missed the boat to buy
At their 52-week low, Rolls-Royce shares plunged to an intra-day low of 64.44p on 28 September. They have since rebounded by more than 11p to their current level. This leaves me thinking that I may have missed my chance to get on board at a bargain-bin price. Then again, as a veteran value investor, I find it very difficult to put a firm price on Rolls-Royce stock.
Without any tangible profits, positive earnings, or dividends to work from, it’s very tricky to justify the company’s current market value of £6.3bn. What’s more, the firm carries over £5bn of net debt on its balance sheet — and global interest rates are taking off. Also, the company lost £1.6bn in the first half of 2022, with positive profits unlikely to arrive until well into 2023.
In short, in this increasingly turbulent global economy, Rolls-Royce shares are too risky for me, although I think they are by no means a dead duck. Hence, I’ll stick to what I know best — buying shares in quality businesses at modest prices for the long term!
The post Are Rolls-Royce shares a dead duck? Maybe not! appeared first on The Motley Fool UK.
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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.