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Rolls-Royce shares lose 25% in 2022. Time for a climb?

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Since 31 December 2021, the FTSE 100 index has lost just 1.1% of its value. This makes the Footsie one of the world’s best-performing major stock indices in 2022. Alas, not all Footsie shares have fared so well this year. Take, for example, Rolls-Royce Holdings (LSE: RR) shares, which have dived by almost a quarter since end-2021. What’s holding back the stock of this world-famous engineering firm?

Rolls-Royce shares take a dive

On 7 February 2020, just before Covid-19 collapsed global stock markets, Rolls-Royce shares closed at 235.76p. However, as the pandemic worsened, lockdowns and social restrictions caused air travel to nosedive. As Rolls-Royce’s business model is built on passenger air-miles travelled, its stock imploded.

Here’s how the Rolls-Royce share price has performed over seven different timescales:

One day 0.3%
Five days 2.1%
One month 13.5%
2022 YTD -24.5%
Six months -19.8%
One year -4.3%
Five years -70.9%

As you can see, this FTSE 100 firm’s shares have fallen by close to a quarter in 2022. What’s more, they have given up over seven-tenths of their worth over the past half-decade. Of course, these declines can be almost entirely attributed to the coronavirus crisis of 2020-21.

Could this share be set to soar?

One piece of good news for battered Rolls-Royce shareholders is their shares have shown some strength recently. Having closed at 79.12p on 5 July, they hover around 92.74p as I write. Here’s what this translates to in terms of company fundamentals:

Share price 92.74p
52-week high 161.91p
52-week low 77.86p
Market value £7.8bn

Right now, Rolls-Royces shares lag 42.7% below their 52-week high — and they have a long way to go to regain their heights of November 2021. Frankly, I’m surprised that this stock has been so depressed in 2022, given the surging demand for air travel this summer.

But the engineer faces several strong headwinds. At end-2021, the group’s net debt exceeded £5bn — over 64% of its current market value. As interest rates rise to quell red-hot inflation, this debt will become more expensive to service in future. Even so, the company is creeping towards making an operating profit, plus its cash flow is improving.

Would I buy this stock today?

At present, I worry about the soaring cost of living, driven by surging prices for oil, gas, and electricity. Likewise, I fret about higher interest rates hammering economic growth in 2022-23. And I fear a global recession, partly driven by the war in Ukraine.

Nevertheless, I suspect that civil aviation and defence spending — Rolls-Royce’s key markets — are set to enjoy years of uninterrupted growth. Indeed, this may transform Rolls-Royce into a powerful growth stock in years to come.

However, I won’t buy these shares right now. But that’s only because I’m a veteran value investor at heart. I prefer shares trading on low earnings multiples that offer generous dividend yields. And Rolls-Royce has not paid any dividends since the interim payment of 4.6p a share paid on 3 January 2020. Therefore, although I am optimistic for the Rolls-Royce share price, I’m simply not a natural buyer of this stock right now!

The post Rolls-Royce shares lose 25% in 2022. Time for a climb? appeared first on The Motley Fool UK.

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Cliffdarcy 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.