Rolls-Royce share price is up 992%: What happens now?

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on Mar 5, 2024
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  • Rolls-Royce stock price has been in a parabolic move in the past few years.
  • It has surged by more than 992% from its lowest point during the pandemic.
  • Technicals point to another 18% upside as bulls target its all-time high.

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Rolls-Royce (LON: RR) share price has jumped in the past four straight months and is hovering at its highest point since February 2014. It has surged by over 992% from its lowest point in October 2020, making it a shining star in the FTSE 100 index. The stock is up by 26% in 2024 while the Footsie is still in the red.

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Why Rolls Royce shares surged

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Rolls-Royce Holdings stock price has surged in the past two years as the company has faced numerous tailwinds across its three businesses. 

First, the rally is happening across the industrial sector. In France, the Safran stock price is nearing 200 euros, which is also 288% above its lowest point during the pandemic. As I wrote recently, General Electric shares have surged to $160, 380% above its pandemic low.

Rolls-Royce vs Safran vs General Electric stocks

Rolls-Royce vs Safran vs General Electric stocks

This performance is happening as the civil aviation industry has bounced back around the world. For example, IATA now estimates that airline profits will surge to over $25 billion this year while revenue will approach $1 trillion.

Rolls-Royce is a major player in the civil aviation industry, where it provides some of the best engines for wide-body planes. It makes most of its revenue from services, whose cycle is determined by the flying hours.

Second, the company is under a new management led by Tufan Erginbilgiç, a former executive at BP. In his tenure, he has unveiled new cost-cutting measures and ambitious revenue and margin targets. 

His goal is to make all parts of Rolls-Royce Holdings profitable. For example, unlike in the past, when the company used to sell its engines at a loss, it now aims to gain a small profit for all engines it sells. 

These measures are starting to bear fruit. The most recent results revealed that Rolls-Royce revenue jumped to £15.4 billion in 2023, up from £12.6 billion a year earlier. Its operating profit more than doubled to £1.59 billion while its profit before tax came in at £1.26 billion.

Its cost-saving measures are also working. The company saved between £400 million and £500 million in 2023 and this trend may continue in the coming months.

Third, the company has benefited from the efficiency of its engines. As you can recall, the company lost billions of dollars a few years ago when its Trent engine developed cracks. 

The company is also benefiting from the ongoing wars in Ukraine and the Middle East. As a major defence contractor, it has seen robust orders in this division. In 2023, the division’s underlying revenue jumped by 12% to £4.07 billion. Its profit surged by 44% to £413 million. 

Rolls-Royce share price forecast

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Rolls-Royce share price

RR chart by TradingView

As shown above, the Rolls-Royce stock price has gone parabolic in the past few months. On this weekly chart, we see that it has retested the important resistance point at 377p, the highest swing in July 2018. 

As expected, the stock has remained constantly above all moving averages, signalling that bulls are in control. On the other hand, the Stochastic Oscillator and Relative Strength Index (RSI) have all moved to the extreme overbought points. 

That is a sign that the stock has a bullish momentum. Therefore, at this point, there is a likelihood that this uptrend will continue as buyers target its all-time high of 445p, which is about 18% above the current level.

With the stock being highly overbought, it also means that long-term investors could start paring back some of their profits.

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