The last 12 months have seen the Rolls-Royce (LSE: RR) share price rise a whopping 158%. And if I’d bought the shares at the beginning of 2023, I would have more than doubled my money. This fine form continued last week as it jumped 11%.
It’s been a rollercoaster few years for the business. The pandemic took a massive toll on its operations. Following that, its shares had been on a steady decline.
However, lately it’s regained some serious momentum. This has me wondering if I’ve missed my chance to buy.
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Mission to save
So, what’s been driving this impressive performance? Well, a host of reasons. But one of the most influential has been the actions of CEO Tufan Erginbilgic to cut costs. As he continued to put into place his long-term strategy following his appointment at the beginning of the year, it was announced that Rolls-Royce is set to cut 2,500 jobs (around 6%) of its global workforce.
By doing this, the firm aims to reduce the duplication seen across its business areas. By bringing teams across the group together, Erginbilgic plans to “build a high-performing, competitive, resilient and growing Rolls-Royce.”
As a Fool — that is, an investor who adopts a long-term outlook — this is an encouraging sign. A string of strong results may also pay homage to the fact that Rolls-Royce is moving in the right direction.
On top of this, high demand from airlines post-pandemic is also good news for the firm. It generates nearly half of its revenue from its civil aviation segment. And with this demand expected to continue in the years to come, Rolls is in a prime position to benefit.
Rolls-Royce issues
That said, I do have a few concerns. To start, the business has debt on its books. It has made strong efforts to reduce this pile. However, with a large proportion of it due by 2025, this makes it a bigger issue.
On top of that, it’s been experiencing some supply chain issues. It also has thinner margins than its peers.
Dividend potential
One of the main criteria I seek when selecting investments is a dividend yield. And while the stock doesn’t currently offer one, this could change soon.
With the business recently starting to generate free cash flow again, I’m hoping it may look to begin to pay back its shareholders. Raising its full-year guidance target for free cash flow is a positive signal. Many in the City also forecast a payout as we head into 2024 and 2025.
My move
So, with its strong momentum, have I missed my chance?
Well, there’s certainly a lot to like about Rolls-Royce. A business posting an impressive recovery with monumental share price growth isn’t to be sniffed at.
However, it’s this exact reason I’m on the fence about buying. It may be that the stock has reached its full potential, for now.
Rolls-Royce is a stock on my watchlist and I’ll be watching it closely. But I’ll be looking elsewhere right now.
