Should You Investigate Rolls-Royce Holdings plc (LON:RR.) At UK£4.13?

Let's talk about the popular Rolls-Royce Holdings plc (LON:RR.). The company's shares saw a significant share price rise of 38% in the past couple of months on the LSE. The recent share price gains has brought the company back closer to its yearly peak. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s examine Rolls-Royce Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Rolls-Royce Holdings

Is Rolls-Royce Holdings Still Cheap?

Great news for investors – Rolls-Royce Holdings is still trading at a fairly cheap price according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. we find that Rolls-Royce Holdings’s ratio of 14.32x is below its peer average of 22.21x, which indicates the stock is trading at a lower price compared to the Aerospace & Defense industry. However, given that Rolls-Royce Holdings’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Rolls-Royce Holdings generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of Rolls-Royce Holdings, it is expected to deliver a highly negative earnings growth in the next few years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What This Means For You

Are you a shareholder? Although RR. is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. We recommend you think about whether you want to increase your portfolio exposure to RR., or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on RR. for a while, but hesitant on making the leap, we recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

If you want to dive deeper into Rolls-Royce Holdings, you'd also look into what risks it is currently facing. When we did our research, we found 4 warning signs for Rolls-Royce Holdings (2 are concerning!) that we believe deserve your full attention.

If you are no longer interested in Rolls-Royce Holdings, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.