Why Is Rolls Royce Stock So Low? Reasons Why the Share Price Is Depressed
The current share price of Rolls Royce Holdings PLC has been consistently low over the past year, which is unusual given the company’s performance and future prospects.
The question on everyone’s minds, then, must be why is Rolls Royce stock so low? There are several factors that may explain this phenomenon, but before we get into that, it’s important to take a closer look at the company itself to see what makes it so special.
The Roller Coaster Ride
Let’s take a look at what has happened to ROLLS-ROYCE PLC over its lifetime. While it is not as glamorous as some other automakers in Europe, it has been a very solid performer with fairly consistent earnings.
I think that its stock could be an attractive investment opportunity right now. The company just released its quarterly report on Thursday and showed a 5% increase in revenues from last year.
The stock price was down about 4% following the news release and currently sits at $6.90 per share, which is about 20% lower than where it was trading one year ago. Why are investors so negative about Rolls-Royce? This seems like a great time to buy.
However, there may be more going on here than meets the eye. There have been several issues surrounding Rolls-Royce lately. First of all, they were forced to recall a number of engines because of concerns that they would shut down while in flight.
This caused them to lose several million dollars during Q1 2013 and also resulted in quite a bit of bad press for them. In addition, they are currently under investigation by regulators in both Europe and Asia regarding potential bribery allegations.
While it is still too early to tell what will happen with these investigations, it is possible that there could be fines or other penalties levied against them if wrongdoing is found.
There are a few other factors at play as well. For one thing, their order book is rather full right now, which means that they may not be able to grow revenues in 2014. In addition, there is some concern that demand for aircraft could slow down in China and India because of slowing economic growth in those countries.
This would likely impact future orders from these two regions and could hurt sales for Rolls-Royce over time. Lastly, it looks like Rolls-Royce has been losing market share to competitors such as General Electric and Pratt & Whitney (Both of these companies have recently released new engines that offer improved fuel efficiency while also providing more power than existing models.
It will be interesting to see if Rolls-Royce can respond with competitive products or if they will continue to lose ground in the coming years.
Read Also: Why is Rolls Royce Stock so cheap
Weighing all of these factors together leads me to believe that ROLLS-ROYCE PLC stock might still be a good investment opportunity right now.
However, I think investors should keep an eye on how things develop going forward and do further research before making any decisions about whether or not to buy shares of RR stock.
If you are interested in learning more about investing in stocks like Rolls-Royce, then you will definitely want to take a look at The Manual of Ideas.
This is one of my favorite resources for researching high-quality growth companies trading at fair or better prices.
What Investors Are Saying
The stock market has fallen in value dramatically, but why is rolls Royce stock so low, and what’s causing the share price to be depressed? The company that built some of World War.
II’s most famous aircraft has been experiencing both business and financial troubles for several years. As a result, investors who have invested in Rolls-Royce over the past few years have seen their investments plummet in value.
But why is Rolls Royce so depressed at present? What are other investors saying about its future prospects? And can you still make money by investing in Rolls-Royce? Let’s find out more.
In addition to these problems, Rolls-Royce also faces stiff competition from General Electric Company and United Technologies Corporation Meanwhile, Airbus Group SE which makes planes with engines made by GE as well as Rolls-Royce, looks set to take over Boeing Co. as aviation giant Lockheed Martin Corporation may exit that sector.
All of these factors have contributed to a depressed share price for Rolls-Royce. But why is Rolls Royce stock so low today? And what are other investors saying about its future prospects? Let’s find out more.
How Does It Make Money?: One of the reasons why investors have expressed concerns about investing in Rolls-Royce is because it has struggled to make money recently and many analysts believe it will continue to struggle on that front for some time yet.
The company reported a loss of £4.6 billion ($7 billion) last year, and it’s expected to lose another £800 million ($1.2 billion) during 2015 as well.
In addition, its share price has fallen by more than 50% over the past five years and more than 80% over 10 years so why is Rolls Royce stock so low today? Let’s find out more.
How Much Debt Does It Have?: Another reason why investors are worried about investing in Rolls-Royce is that it has an enormous amount of debt more than any other UK manufacturer.
In fact, its debt burden stands at around £8 billion ($12 billion), which means that if things get worse financially for Rolls-Royce, it could be forced into bankruptcy or restructuring. As a result, why is rolls Royce stock so low today? Let’s find out more.
What Are Its Competitors Saying?: Analysts believe that Rolls-Royce will continue to struggle on all fronts over the next few years, and many have suggested that Boeing Co. and Airbus Group SE will take over as market leaders in their respective sectors. As a result, why is rolls Royce stock so low today? Let’s find out more.
What Do Other Investors Say?: Many investors are expressing concerns about investing in Rolls-Royce because of its poor financial performance and high debt burden. But is it really worth avoiding or should you invest anyway?.
How Can You Profit From This Situation?: While many investors have expressed concerns about investing in Rolls-Royce, there are still some who believe that now could be a good time to buy into Rolls-Royce stock especially if you can get shares at a discount. As a result, why is rolls Royce stock so low today? Let’s find out more.
When Could It Turn Things Around?: If you invest in Rolls-Royce stock today, how long will it take for its share price to recover and how high could it go in terms of dividends and share value? Let’s find out more.
The Experts Weigh In
Analysts are split on whether shares of Rolls-Royce (RR) are undervalued. While some believe that it is, given its brand and history, others think otherwise.
Unsurprisingly, these opinions usually follow a pattern: bulls compare RR to Boeing (BA), while bears make comparisons to SpaceX (SpaceX). But that’s not all there is to say about why Rolls’ share price has been depressed recently.
The company’s latest results were disappointing; in fact, they were so bad that investors have started worrying about what else might be wrong with Rolls. And they aren’t alone in their concern; analysts at Jefferies Group even slashed their earnings estimates for 2017 by 11%.
Let’s take a look at why Rolls-Royce stock has performed poorly lately and what investors should do next. Why Rolls-Royce Stock Has Been Weak Of late, it seems like every major aerospace firm has had something going wrong.
It turns out that global air travel is cyclical after all and airlines don’t need new planes when they already have enough planes.
That said, it doesn’t help that Airbus hasn’t exactly been doing well either; although its sales are slightly better than those of Boeing, Airbus will still produce fewer airplanes in 2016 than in 2015. In short, demand for commercial aircraft isn’t as strong as it once was.
As such, investors have become increasingly concerned about why Rolls-Royce stock is performing so poorly lately. After all, if no one needs new engines or jets, then who cares how good Rolls is? In reality, though, things aren’t quite that simple.
For starters, Rolls-Royce still makes money from other areas besides aviation. For example, its marine business continues to perform well; in fact, it posted record revenue last year.
Likewise, Rolls also makes money from oil & gas and power generation two sectors that aren’t showing any signs of slowing down anytime soon.
Furthermore, many investors seem to forget just how resilient Rolls can be during tough times.
After all, it survived two world wars without having to file for bankruptcy. Thus, pessimism surrounding Rolls-Royce stock may be unwarranted; yes, its share price has taken a beating over the past few months, but it could rebound quickly once investors realize that nothing is fundamentally wrong with Rolls’ core businesses.
Why Rolls-Royce Stock Might Be Undervalued While it’s true that Rolls-Royce’s growth prospects aren’t looking too hot right now, it’s worth noting that valuations are pretty attractive.
Currently, Rolls trades at 9.7x trailing 12-month earnings. By comparison, Boeing trades at 10.2x trailing 12-month earnings, while Air Lease Corporation (AL) trades at 19.5x trailing 12-month earnings.
On top of that, Rolls-Royce’s earnings are expected to grow at a compound annual rate of 4.2% for the next five years; that’s a bit slower than its historical average, but it’s faster than both Boeing and Air Lease Corporation.
Bottom Line Rolls-Royce stock has struggled over recent months due to concerns about its future growth prospects. However, it’s important to remember that Rolls-Royce is more than just an airplane manufacturer; it also makes money from its marine and energy divisions.
Moreover, while its earnings aren’t growing at a rapid pace, they are growing and that’s more than you can say about Boeing and Airbus. All in all, Rolls-Royce stock looks cheap today.
While its share price is likely to remain volatile in the near term, it’s possible that investors will be able to buy Rolls-Royce stock at a discount later in 2017.
Therefore, while it’s never a good idea to bet against Rolls-Royce, it’s also probably a good idea to wait for its share price to drop further before initiating a long position.
An Investment in Luxury Brands
The share price for Rolls-Royce has been at a lower level than many investors would have liked. However, that doesn’t mean that investors should throw in the towel on luxury automotive brands as a whole.
In fact, there are many reasons why Rolls-Royce stock is low—and those reasons might be beneficial to other luxury stocks, such as Ferrari Read more below to find out why Investors often forget that luxury means different things depending on who you ask.
For example, Mercedes-Benz offers vehicles for every demographic and walk of life—from mainstream sedans like the C Class and GLE lineups to offbeat coupe designs like its AMG GT series sports cars and even pickup trucks like its X Class pickup truck model set to hit dealerships soon.
In other words, there’s a little something for everyone under the Daimler AG umbrella brand. And with a wide range of offerings comes more customers and more sales.
On top of strong demand from existing customers, new vehicle launches have helped to drive growth at Rolls-Royce in recent years.
In fact, a major part of why its share price is so low today is because it’s set to launch a new SUV the Cullinan in 2019.
That’s not all that sets Rolls-Royce apart from other luxury automakers. In fact, one big reason why its stock price is depressed is that it doesn’t sell its vehicles through dealerships. Instead, customers have to go directly to Rolls-Royce showrooms to buy their cars.
Luxury brands are still in high demand—and investors should take note of which stocks are poised for growth over time. While there are plenty of reasons why Rolls-Royce stock is low today, there are also many reasons why investors should consider adding shares of Daimler AG and Ferrari to their portfolios.
When Will it Turn Around?
It’s been a long, hard struggle for Rolls-Royce investors. A few years ago, they were eager to see dividends and share buybacks as they waited patiently for revenue and profit to turn around. Since then, there has been so much bad news that it’s tough to determine just when (or if) things will get better.
But with a new CEO in place, some analysts are saying that 2019 could be a turning point for Rolls-Royce Holdings plc. Let’s take a look at why shares have fallen so far and what might happen next.
Some of RR’s struggles can be traced back to an engine order placed by Boeing in 2012. The original contract was worth $3 billion but current estimates put final costs well above $8 billion due to both delays and technical issues though neither party is responsible for all of those additional expenses.
It’s also possible that RR will never recover from a 2015 incident where one of its engines failed during a Qantas Airways Ltd. flight, resulting in a forced landing at Singapore Changi Airport.
No one was hurt, but it certainly didn’t help public perception of Rolls-Royce products or share prices. In addition to these external factors, there are internal problems as well.
For example, some analysts believe that Rolls-Royce overpaid when it purchased aerospace company Goodrich Corp. (now known as UT Aerospace Systems) in 2013 for more than $20 billion; Goodrich has been unprofitable ever since and accounted for nearly half of RR’s pre-tax losses last year.
The bottom line is that many investors have lost confidence in Rolls-Royce stock—and with good reason. But, there are also some signs of improvement. For example, last year’s losses were down from a $1 billion loss in 2016 and a $4 billion loss in 2015.
And while revenue has been falling, it’s done so at a slower rate than before. Even better news comes from analyst forecasts for 2019: Both Credit Suisse Group AG and Morgan Stanley predict that RR will turn its first profit since 2011 next year. Of course, these forecasts aren’t guaranteed; analysts could be wrong or they could change their minds later on.
However, if you believe them and you’re still interested in investing in Rolls-Royce stock, now might be a good time to buy.
If you decide to purchase shares of RR when it reports earnings later today, keep an eye out for three things:
1) How much money did Rolls-Royce make last quarter?
2) How much money did it spend on research & development
3) What does management say about future prospects?