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Is Rolls-Royce Holdings plc (LON:RR.) Potentially Undervalued?

Simply Wall St
·3-min read

Today we're going to take a look at the well-established Rolls-Royce Holdings plc (LON:RR.). The company's stock saw a significant share price rise of over 20% in the past couple of months on the LSE. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s take a look at Rolls-Royce Holdings’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Rolls-Royce Holdings

What is Rolls-Royce Holdings worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 18% below my intrinsic value, which means if you buy Rolls-Royce Holdings today, you’d be paying a fair price for it. And if you believe that the stock is really worth £1.32, then there isn’t much room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? 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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of Rolls-Royce Holdings look like?

earnings-and-revenue-growth
earnings-and-revenue-growth

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 76% over the next year, the near-term future seems bright for Rolls-Royce Holdings. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? RR.’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping tabs on RR., now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Rolls-Royce Holdings at this point in time. To that end, you should learn about the 2 warning signs we've spotted with Rolls-Royce Holdings (including 1 which is a bit concerning).

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.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.