If I’d been brave enough to buy £10,000 of Rolls-Royce (LSE:RR.) shares on 12 November 2020, I’d be sitting on a paper profit of £45,333. That was the day when the shares issued as part of the company’s October rights issue were admitted to trading.
Extinction was a possibility
Looking back, it’s hard to overstate the devastating impact that the pandemic had on the engineering giant. I think it’s fair to say that it nearly went bust.
The graphic below compares the company’s 2020 financial performance with that of a year earlier. Incredibly, there was £4.5bn reduction in underlying earnings and a £5.1bn swing in free cash flow. These contributed to the group moving from a net funds position to a net deficit.
Source: Rolls-Royce annual report 2020
To survive, it had to raise £5.3bn of debt, dispose of some non-core assets, rapidly cut costs, and, finally, raise £2bn through the issue of new shares.
Fortune favours the brave
But I didn’t buy.
I remember thinking at the time that it was way too risky for me.
Perhaps I should have reflected more on the words of Warren Buffett, who famously advised: “to be fearful when others are greedy and to be greedy when others are fearful”.
Those who heeded this advice — and bought Rolls-Royce shares nearly four years ago — have been handsomely rewarded.
However, with the benefit of hindsight, Buffett’s quote will always hold true. I can find literally thousands of examples of how — in theory — I could have made loads of money from buying shares at a relative low point and then selling them when their price was much higher.
But in reality, it’s much more difficult than that.
When confronted with a stock that appears to be going in the wrong direction, it’s easy to think that it will continue to fall. Likewise, with one that’s been on a strong bull run, many will wonder whether it’s at — or close to — its peak.
And this brings me back to Rolls-Royce.
Having failed to buy when it was at rock bottom, I’m now telling myself that it’s too expensive!
Brokers are forecasting earnings per share of 15.76p in 2024. This implies a forward price-to-earnings ratio of 31.6 — not far off the multiple of the Magnificent Seven (35).
Time to reflect
As I get older I find myself becoming more cautious. But that’s as it should be.
There’s no point spending a lifetime building up a stocks and shares portfolio, to then go and blow it a few years before retirement by making some speculative ill-fated investments.
Don’t get me wrong, I’m not putting Rolls-Royce in this category. I remain a big fan of the company, which has a reputation for engineering excellence.
It’s proven me wrong many times over the past four years and could do so again.
It (again) upgraded its 2024 earnings forecast on 1 August and now expects to report an underlying operating profit of £2.1bn-£2.3bn. And it plans to reinstate its dividend.
But I think there are currently much better opportunities elsewhere for my portfolio.
The post If I’d invested £10,000 in Rolls-Royce shares on 12 November 2020, you won’t believe how much I’d have now! appeared first on The Motley Fool UK.
Should you invest £1,000 in Rolls-Royce 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 Rolls-Royce made the list?
See the 6 stocks
More reading
Does another ratings upgrade set the stage for further Rolls-Royce share price gains?
The Rolls-Royce share price has stopped climbing. Is it about to crash?
If I’d put £5,000 into Rolls-Royce shares 4 years ago, here’s how much I’d have now
These are the FTSE 100 shares I’d buy in a new stock market crash
Up 147% in a year, could the Rolls-Royce share price still be a bargain even now?
James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended Rolls-Royce Plc. 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.
