Home Share Market Why I’m looking at Rolls-Royce shares for 2023

Why I’m looking at Rolls-Royce shares for 2023


Edinburgh Cityscape with fireworks over The Castle and Balmoral Clock Tower

Image source: Getty Images

It has been a tough year for holders of Rolls-Royce (LSE:RR) shares. The share price is hovering around the 85p mark after rallying recently, but that still puts it down nearly 38% since January.

The company has struggled with the pandemic hangover experienced by airlines this year. Aircraft order cancellations mean Rolls-Royce has lost a significant portion of its future engine orders.  

Additionally, analysis from JP Morgan cast doubt on Rolls-Royce’s expansion into small nuclear reactors. The company is investing heavily in creating small modular reactors (SMRs) that can be built cheaply and used more widely than traditional nuclear power stations. However, it doesn’t expect to have them up and running until the early 2030s. 

Despite this, there could still be potential in the company. So here’s why I’m looking at Rolls-Royce shares for 2023.

Looking to the future

The need for clean, reliable, and cost-efficient energy is clear. Countries are setting targets of breaking away entirely from fossil fuels over the next 20-30 years. To do that, technology that we don’t have now will be needed. 

Rolls-Royce hopes to be one of the companies providing such technology. Its proposal for small modular reactors is bold. By 2050, Rolls-Royce hopes its SMR consortium will be able to provide 20% of the UK’s grid energy. 

It aims to do this by building the reactors using existing supply chains and off-the-shelf parts. If successful, it would cut down on the cost, size, and time requirement compared to a traditional nuclear power station. 

Potential for growth

Clean, cheap, and scalable energy sounds like a gold mine. So why is the Rolls-Royce share price still so low? Well, there’s debate over whether Rolls-Royce’s plans will be profitable quickly enough, or indeed at all. That’s the sticking point for JP Morgan analysts.

That’s why I’m watching Rolls-Royce’s share price like a hawk. If its aircraft engine sales fall further, the company could be in serious trouble. Yet, if its engine sales stabilise long enough for the company to bring its SMR project to fruition, it could have huge growth potential. 

The reason I’m still only watching Rolls-Royce shares is that there are substantial risks. The company has debts that are due in 2024. So if I’m buying the company for growth over the next decade, I want to be sure it can survive that long. 

The company’s price-to-earnings (P/E) ratio currently sits at an unattractive 59. If Rolls-Royce’s order book takes any more hits, that could make a bad situation significantly worse. 

If that P/E ratio gets worse, I’ll want to skip adding Roll’s-Royce to my portfolio in 2023. However, if it starts to balance out from the share price dropping further or earnings improve, I’ll find the risk of investing long term more palatable.





Source link

RELATED ARTICLES

Business News LIVE Today: Latest Business News, Share Market News, Economy & Finance News | Moneycontrol

By Market Capitalisation. Net Sales. Net Profit. Total Assets. Excise. Other Income. Raw Materials. Power & Fuel. Employee Cost. PBDIT. Interest. Tax. EPS. Investments. Sundry Debtors. Cash/Bank. Inventory. Debt. Contingent Liabilities. Screen Crit Abrasives Aerospace & Defence Agriculture Air Conditioners Airlines Aluminium & Aluminium Products Amusement Parks/Recreation/Club Aquaculture Auto Ancillaries Auto Ancillaries -...

Should I buy BP shares for 2023?

BP (LSE: BP) shares have delivered very strong returns in 2022. Year to date, they’re up about 46% (one of the best...

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Most Popular

Covid-19 leaked from China’s Wuhan lab, US govt to blame too, claims scientist in new book

A US-based scientist who formerly worked with the Wuhan Institute of Virology in China claimed, in his book, that the Covid-19 virus was...

North Korean Lazarus Group Linked to New Cryptocurrency Hacking Scheme – Security Bitcoin News

The Lazarus group, a North Korean hacking organization previously linked to criminal activity, has been connected to a new attack scheme to breach...

Recent Comments