Why I think the 94p Rolls-Royce share price could double my money

first_imgWhy I think the 94p Rolls-Royce share price could double my money FREE REPORT: Why this £5 stock could be set to surge Image source: Getty Images. I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. G A Chester 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. Simply click below to discover how you can take advantage of this. Our 6 ‘Best Buys Now’ Shares Get the full details on this £5 stock now – while your report is free.center_img Enter Your Email Address The Rolls-Royce (LSE: RR) share price hasn’t aroused much interest from investors so far in 2021. It’s down 16% against a flat FTSE 100.Personally, I’m very interested in the stock. In fact, I think I could even double my money by buying Rolls-Royce shares at their current price of 94p.5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…Here, I’ll discuss why I think the shares are attractive at this level. I’ll also look at the potential risks to my investment case.Quality businessLegendary investor Warren Buffett once said: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” But best of all, he relishes opportunities to buy great companies “when they’re on the operating table”.There was a time when my colleague Peter Stephens confidently wrote: “Rolls-Royce is undoubtedly a high-quality company.” It was a view widely shared by us Motley Fool writers.Quality-focused institutional investors were also keen on the company. It was one of the largest holdings of the Sanlam Private Wealth Global High Quality fund. It was also owned by star fund manager of the day Neil Woodford on the basis that “it remains a quality business with superb technology, operating in an industry with very high barriers to entry.”The Rolls-Royce share price tumblesIn more recent years, Rolls-Royce has faced significant challenges that have hurt its financial performance and share price. Some have been internal, including a bribery scandal and durability issues with its Trent 1000 engine. Some external, notably the 2014-16 oil price plunge and current pandemic.My colleague Edward Sheldon is downbeat on the company. He explained: “The reason I don’t see much investment appeal in Rolls-Royce is that I view it as a ‘low-quality’ stock.”Hallmarks of qualityI think the bull/bear case for Rolls-Royce largely comes down to which of the following statements you think is nearest the truth:Rolls-Royce is a high-quality business on the operating table.Rolls-Royce is a low-quality business.Personally, I lean heavily towards the first statement. I think Rolls-Royce retains many of the hallmarks of a quality business, including market leadership in several of its key end markets and high barriers to entry.Rolls-Royce share price potentialManagement’s aiming to deliver at least £750m of free cash flow (FCF) next year. Rolls-Royce’s market capitalisation at its current share price of 94p is £7.9bn. Therefore, the prospective FCF yield is 9.5%. I think this is highly attractive.Back in its share price heyday of 2013/14 — when it was valued as a quality business — its market capitalisation reached as high as £23.8bn, and its FCF yield as low as 3.3%.If it hits its FCF target of £750m next year, I reckon Rolls-Royce’s FCF yield will move back towards a quality-company rating, and I could easily double my money from the current share price.Risks to my investment caseRolls Royce’s FCF target is dependent on the success of a restructuring programme, and management assumptions on the expected recovery in engine flying hours. If either proves too optimistic, there’s a risk it will not meet the FCF target.Furthermore, if the company were to continue struggling to deliver the cash flow, profit margin and return on capital that the market demands to value it as a quality business, Rolls-Royce’s share price may not enjoy an upward re-rating over the longer term. Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. Are you on the lookout for UK growth stocks?If so, get this FREE no-strings report now.While it’s available: you’ll discover what we think is a top growth stock for the decade ahead.And the performance of this company really is stunning.In 2019, it returned £150million to shareholders through buybacks and dividends.We believe its financial position is about as solid as anything we’ve seen.Since 2016, annual revenues increased 31%In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259Operating cash flow is up 47%. (Even its operating margins are rising every year!)Quite simply, we believe it’s a fantastic Foolish growth pick.What’s more, it deserves your attention today.So please don’t wait another moment. G A Chester | Monday, 8th February, 2021 | More on: RR See all posts by G A Chesterlast_img

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