HomeSharesBuy Rolls-Royce
Start trading with eToro

How to buy Rolls-Royce stocks in 2022

Rolls-Royce logo
Rolls-Royce (RR)
...
24H Change
...
exchange
...
Author: Tony Loton Updated: July 4, 2022

The average consumer might think of Rolls-Royce as a British car manufacturer; however, Rolls-Royce Holdings plc is actually a multinational aerospace and defense company headquartered in Britain. The motor company was spun out in 1973 and the motor brand was later purchased by BMW.

The group owns subsidiaries that design, manufacture, and distribute power systems for aviation and other industries. When it comes to aircraft engines, Rolls-Royce is the second-largest maker after General Electric, and the group also has businesses in the marine propulsion and energy sectors.

Today, the company owns more than 100 subsidiaries and joint ventures and has more than 50,000 employees globally. The company’s stock is listed on the London Stock Exchange and is a component of the FTSE 100 index. This guide tells you how to buy Rolls-Royce stock confidently and why you might want to, taking various fundamental factors into account.

How to Buy RR Stocks in 5 Easy Steps

  1. 1
    Visit eToro through the link below and sign up by entering your details in the required fields.
  2. 2
    Provide all your personal data and fill out a basic questionnaire for informational purposes.
  3. 3
    Click 'Deposit', choose your favourite payment method and follow the instructions to fund your account.
  4. 4
    Search for your favourite stock and see the main stats. Once you're ready to invest, click on 'Trade'.
  5. 5
    Enter the amount you want to invest and configure your trade to buy the stock.

Everything You Need To Know About Rolls-Royce

Before analyzing the fundamental value of Rolls-Royce stock with a view to buying shares, it is crucial to understand what the company does and how it generates revenue. In addition, it is critical to understand how the company differentiates itself from its competitors and whether this differentiation has intrinsic value. Below is a deep dive into the company's history and how Rolls-Royce makes money.

Rolls-Royce History

The Rolls-Royce company originates from an engineering business started by Henry Royce in 1884 and a company designing cars by Charles Rolls in 1904. The newly formed Rolls-Royce Limited was incorporated in 1906 when the two men agreed to manufacture and sell a range of cars. In 1971, Rolls-Royce Limited went into liquidation as the company could not meet its financial obligations. The UK government bought the business and assets of the company. Rolls-Royce Limited was then incorporated under a new name, Rolls-Royce plc.

Rolls-Royce plc was the trading company and the entity listed on the London Stock Exchange until 2003. In 2003, the company's shareholders agreed to create a new holding company: Rolls-Royce Group plc. Later in 2011, Rolls-Royce Group became a subsidiary of the new parent company for the Group Rolls-Royce Holdings plc. The holding company is the one that is now traded on the LSE.

What Is Rolls-Royce's strategy?

Rolls-Royce focuses on four main sectors: civil, military, marine, and energy. The firm has spent a large percentage of its capital expenditure on the research and development of its product lines. This is to provide new products and new technologies, which later grow the revenue of the company. At its core, Rolls-Royce aims to maintain and defend its core business lines. Supplemental to this, the company seeks to nurture emerging businesses that it can later acquire. While executing these two goals, the company manages the transition of technologies, capabilities, resources, and value across business lines.

How Does Rolls-Royce Make Money?

Rolls-Royce makes money from four primary arms of operations:

  • Civil Aerospace is the most significant contributor to revenue for the company. This arm is responsible for manufacturing aero engines for large commercial aircraft, regional jets, and the business aviation markets. The main component manufactured by the civil aerospace segment is large engines making up an average of 70% of the revenue mix of this operating segment.

  • Power Systems refers to the arm of Rolls-Royce that provides high-speed and medium-speed reciprocating engines and complete propulsion and power generating systems. This segment sells products to marine, defence, power generation, and industrial markets. The power systems segment is the second-largest contributor to revenue, making up 22% of revenue.

  • The Defence segment is a market leader in aero-engines for military transport and patrol aircraft with solid combat and helicopter applications. This segment is the third-largest revenue contributor for Rolls-Royce, making up an average of 20% of the revenue. However, it is the most significant contributor to net profits for the company.

  • The ITO Aero segment refers to the Industria de Turbo Propulsores and is the Spanish aero engines and gas turbine manufacturer. The segment falls under the aeronautics industry and produces aircraft engines. In addition, this segment also provides maintenance, repair, and overhaul services (MRO services) for business aviation, regional airlines, and industrial and defence applications. As this segment mainly focuses on providing services, it has one of the highest profit margins in the company even though it generates the most negligible revenue.

How Has Rolls-Royce Performed in Recent Years?

Over the past five years, Rolls-Royce stock has generated negative returns of more than 50%. While the stock's last dividend payout was in April 2020, the price action on the stock offset the gains from the payout. Between January 2020 and April 2020, the stock tanked more than 50% when the global markets crashed with the onset of Covid-19 and its worldwide spread. Since then, the stock price has shown minor signs of improvement. Analysts expect that the Rolls-Royce stock should have an uptick in its price return when the aviation industry picks up in operations again.

Rolls-Royce Fundamental Analysis

Most investors apply some form of fundamental analysis before investing in a company. Fundamental analysis is used to measure a company's intrinsic value by examining the relevant economic and financial factors that affect the company. We will examine factors about Rolls-Royce stocks like P/E, revenue, earnings, earnings-per-share, dividend yield, and cash flow.

Rolls-Royce's Revenue

A company's revenue refers to the money generated by the operations of the company. In the case of Rolls-Royce, revenue comes from the sale of equipment and machinery along with maintenance services. You can find Rolls-Royce's revenue in the company's financial statement, which is published quarterly and annually. The company's revenue is usually the first item on the company's profit and loss statement. Typically, a company with increasing revenue is a good sign, and the stock tends to appreciate these companies.

Rolls-Royce's Earnings-Per-Share

While a company with increasing revenue is good, it means nothing if the company makes losses year after year. Earnings per share is a measure of a company's profitability. It is calculated by dividing the reported earnings by the number of outstanding common shares. Investors can treat this metric as the amount of profits that they earned per share that they hold. However, investors do not receive these earnings as dividends because some companies reinvest their profits to continue growing their revenue.

Rolls-Royce's P/E Ratio

The P/E ratio measures a company's earnings relative to the price an investor pays for a share of the company. It is calculated by dividing the earnings per share (calculated above) by the market price for a share. This measure is also referred to as the price or earnings multiple. The P/E ratio of Rolls-Royce can be compared to the P/E ratio of a similar company or an industry index. For example, if the P/E ratio of Rolls-Royce is higher than most competitors, this can indicate that the stock price is too high. On the other hand, when a company has been reporting a loss, the denominator of this ratio will be negative. It is not customary to report a negative P/E ratio in finance, so analysts usually leave the ratio at zero.

Rolls-Royce's Dividend Yield

When a company reports a profit, the company's management can decide to reinvest all the profits to increase revenue in the next year, or they can decide to share some of the profits with investors in the form of a dividend. Dividend yield is a measure of the price an investor pays to receive this piece of profits and is usually expressed as a percentage. For example, Rolls-Royce's dividend yield is calculated by dividing the dividend per share by the market price. The most recent dividend paid by Rolls-Royce was in April 2020. 

Rolls-Royce's Cash Flow

The cash flow of a company refers to the movement of cash within a company during a period. Cash inflows come from sales of a product, gains from investments, or interest from money lent. In contrast, cash outflows go towards paying for inventory and covering expenses incurred during the period. A company with a stable cash flow that results in net inflow of cash is considered a good company. This indicates that the company's cash expenses can be covered by the cash generated from sales and investments.

Why Buy Rolls-Royce Stocks?

In recent years, Rolls-Royce fundamentals may not have been attractive. In the past five years, the company's revenue has grown except for 2020. Meanwhile, the company has recorded a loss for four of the past five years. However, when examining the company's financials, Rolls-Royce has a sizable asset base that can be sold to finance projects that may increase the company's value. The company's cash flow is also healthy, with net positive movements in cash over the years.

Here are some reasons why you might want to buy stock in Rolls-Royce:

  • You gain exposure to the aircraft manufacturer sector and the automobile sector at one price.
  • The company has been in existence for more than 100 years with a globally established brand reducing the risk faced by younger companies or start-ups.
  • The company's share price fell in 2013, making the current price a bargain for bullish investors.

Expert Tip on Buying Rolls-Royce Stock

When trading Rolls-Royce or any other stock, a good tip is to do your due diligence. While this guide has given you an in-depth investigation into the company's operations, be sure to do your research. Take the time to review the company's financial reports, company news, competitors, and how analysts expect the company to perform. As a result, you will be a much better trader for honing this skill, and you reduce your risk exposure by eliminating bad investments.
- Tony Loton
Buy Rolls-Royce Stocks Today!

5 Things to Consider Before You Buy Rolls-Royce Stock

It is critical to take the following five pieces of advice before you buy the Rolls-Royce stock.

1. Understand the Company

Benjamin Franklin, one of the founding fathers of the United States once said that an investment in knowledge pays the best interest. Taking the time to educate yourself about trading and the specifics of investment can save you money in the long run. Before investing in a company that sells a product you use every day or a company whose stock price has doubled in the last year, it is essential to look under the hood to understand the company's business model. Companies should use debt to generate revenue and utilize their assets most efficiently. Shareholders should see the returns of their investments either by capital appreciation or dividend payout

2. Understand the Basics of Investing

The easiest way to lose money while investing is by not taking the time to understand how to invest. The financial markets execute trillions of dollars in daily transactions; understandably, a beginner trader will be intimidated by the volume of information. Using risk management tools like stop losses and limit orders when trading reduces the risk of losing your capital. Knowing whether to invest in the stock itself instead of a contract for difference (CFD) or place a bet on the spread all comes with learning the markets.

3. Carefully Choose Your Broker

Choosing the right broker can be the difference between making a profit or a loss on your trades. If your broker fees are too high or the broker has hidden charges for trading, then you may be closing out on profitable positions but may lose all this money when covering the fees. You should also be aware of the leverage your broker offers. Leverage is money borrowed from your broker when you place a trade. Leverage can amplify your gains as well as your losses. Some brokers may offer leverage on instruments such as CFDs or options, but usually, they offer leverage on stock and forex trading.

4. Decide How Much You Want to Invest

When deciding how much you would like to invest, the rule of thumb is that you should only be investing your disposable income. Disposable income refers to the portion of your income that remains after covering your expenses and taxes that you can spend or save as you wish. Therefore, you should be investing with money that you do not need right away, and you certainly do not want to invest all your savings.

5. Decide on a Goal for Your Investment

Investors turn to the market for different reasons; some may want to go on a vacation, others may want to buy their dream house, while some may want to retire. However, one sure thing is that investors turn to the market for the same purpose: to make money. Therefore, the first step in your career as a trader should always be to set your goal. Once you know how much money you need to make and the timeline you have, a little bit of math can determine how much you should invest each month to achieve your goal.

The Bottom Line on Rolls-Royce Stocks

In this guide, we looked at the history of Rolls-Royce Holdings plc, how the company makes money, and the company's strategy for growth. We also took a deep dive into the company's fundamentals, exploring the company's P/E, EPS, and dividend yield. We then discussed where you could buy Rolls-Royce stock, and we offered expert trading tips along with five things to consider when buying the stock.

Before you begin to trade, you should take the time to do the due diligence on your potential investment. Research the stocks you are interested in, choose the best broker that fits your trading style, and make sure to use your risk management tools. Reading this guide was an excellent way to start your trading journey.

For some, trading can be scary, and that's understandable. Take your time to read additional material on your investments and get familiar with global events that may be affecting your trades. You can also spend more time using your paper trading account until you are comfortable trading with real money.

Alternative Stocks

NIO logo
NIO
NIO
...
...
DNB logo
DNB
DNB
...
...
Valeo logo
Valeo
VLEEF
...
...
Vestas logo
Vestas
VWSYF
...
...
Netflix logo
Netflix
NFLX
...
...
ThyssenKrupp logo
ThyssenKrupp
TYEKF
...
...

Frequently Asked Questions

  1. Companies are not legally obligated to give a dividend payout to shareholders. The board of Rolls-Royce decided to suspend the final dividend payment in 2019 and the interim dividend payout in 2020 due to the uncertainty in the macroeconomic outlook given the slowdown brought on by the global pandemic.

  2. Rolls-Royce Holdings plc (ticker: RR) is traded on the London Stock Exchange. Traders outside of the UK can trade on the LSE if their broker allows access to this market. Traders will also need to convert their base currency like USD, into GBP before trading on the LSE.

  3. An index is a portfolio of hypothetical investment holdings that show the movement of a segment of a market or the market at large. Examples of indices are the FTSE 100 Index, the S&P 500 Index, or the Euro STOXX 50 price index.

  4. Leverage is capital borrowed from your broker that you return with a little interest in some cases. Leverage is a powerful trading tool that can amplify your return on capital, but if misused, it can magnify your losses.

  5. Popular risk management tools available to traders are limit orders and stop losses. A limit order is a type of order that can be used to buy or sell a security at the desired price rather than at market price. A stop loss is similar to a limit order in that it executes a sell order when the security reaches your target price. These risk management tools are used to reduce the risk of losing capital.

  6. Fundamental analysis is used to determine the intrinsic value of a security by examining factors like the company's financials and management strategy. Technical analysis involves examining the trend of the underlying security by considering factors like the price and trade volumes. Some investors try to argue that one type of analysis is better than the other when in fact, they both go together. Fundamental analysis tells you what to invest in, and technical analysis tells you when to invest.