Rolls-Royce share price has a 28% upside: buy if this happens

on Nov 7, 2023
  • Rolls-Royce stock price has surged by over 550% from the pandemic low.
  • The company has made a lot of progress in the past few months.
  • Technicals suggest that the stock will continue surging in the near term.

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Rolls-Royce (LON: RR) share price has been a remarkable bull run this year and is now hovering near the highest point since February 2022. The stock has surged, making it one of the best-performing companies in the FTSE 100 index. It has roared back by over 557% from the lowest point during the pandemic.

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The great transition is ongoing

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Rolls Royce stock price has been one of the best-performing companies in the past few months. This growth was driven by both internal and external factors. Internally, the company got a new CEO, who is focused on growing the company and its boosting its profitability.

The company has also stayed away from trouble as its engines have worked well. As you recall, the firm lost billions of dollars fixing its Trent 2,000 engine. Further, Rolls-Royce Holdings is still focused on profitability as it is in the process of laying off over 2,500 workers.

It has also benefited from external factors. The travel industry has rebounded as evidenced by the strong earnings by companies like Ryanair, EasyJet, and IAG. As a result, many airlines have made orders from companies like Boeing and Airbus.

This is important because Rolls-Royce Holdings makes most of its income from the aviation industry. Most importantly, the company is benefiting from the rising geopolitical issues, which has led to more demand for geopolitical tensions. 

It is also benefiting from the recent AUKUS deal, which has led to more spending on things like nuclear submarines. Governments are also thinking of more nuclear power energy. In all this, the company’s revenue jumped by 28% in the first half of the year while its operating margin rose to 9.7%.

Rolls-Royce Holdings is also making progress in its ultrafan engine, which produces less emissions than the current class. The company said:

“Our order book has grown in all three businesses. Our large engine backlog grew for the first time since 2018, including a large order from Air India in the first half. We also performed the first successful test of the UltraFan demonstrator engine.”

What next for Rolls-Royce share price?

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RR chart by TradingView

Therefore, the question is whether the Rolls-Royce stock price has more room to run. Fundamentally, I think that the company is doing well, with the management doing the right things. They have abandoned some aspirational but loss-making projects and also worked to reduce its costs. However, I feel that the stock is becoming quite overvalued as its market cap has jumped to over 18.9 billion pounds. 

Technically, the Rolls-Royce share price has been in a strong bullish trend in the past few months. On the weekly chart, the stock has moved above the 38.2% Fibonacci Retracement level.

It has formed a golden cross pattern, where the 50-week and 200-week moving averages. The stock has also moved above the important resistance point at 150p, the highest point in November 2021.

Therefore, my rating for the stock is hold for now. A move above the important resistance point at 233.1p will point to more upside. If this happens, the next important point to watch will be at 28.3p, the 61.8% retracement point. This price is about 28% above the current level.

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