The Rolls-Royce (LSE RR) share price recovery is one for the ages. When Tufan Erginbilgic took charge in January 2023 he publicly derided the FTSE 100 engineering group as a “burning platform”. At this point the shares caught fire, and in a good way.
Over five years, they’ve soared a staggering 1,146%. That would have turned a £10,000 investment into £124,600. I’ve done well out of Rolls-Royce shares myself, but not that well. I’ve als learned a good few lessons along the way. Here are seven of them.
1. If you believe in a stock, back it
Timing share purchases is next to impossible. But I got this one dead right, adding it to my Stocks and Shares ISA in October 2022. Sadly, I only put in a small amount. In my defence, I didn’t think it would go this crazy. Today, when I back a stock, I commit enough money to see the benefits if it flies. If I don’t feel confident enough to do that, I clearly don’t rate it as much as I thought.
2. Invest for the long-term
I bailed out once I’d made a 200% profit. To my horror, Rolls-Royce shares just climbed and climbed. Eventually I caved and bought them again. That’s no way to go about these things, but at least I’m up 180% on my second tranche. No more hokey-cokey for me. When I believe in a share, I’ll stick with it.
3. Momentum builds momentum
As a contrarian investor, I’m wary of red-blooded momentum stocks. But success can breed success, as we’ve seen here. The Rolls-Royce recovery started with the post-pandemic return to flying, which boosted revenues from its lucrative engine maintenance contracts. Confidence visibly spread across the group.
4. Profits drive share prices
Where profits go, stock prices tend to follow. The last five years of pre-tax profits say it all.
- 2025 – £3.35bn
- 2024 – £2.29bn
- 2023 – £1.26bn
- 2022 – (£1.50bn)
- 2021 – (£294m)
5. Management matters
Erginbilgic has driven a complete cultural reset. His intense focus on operational discipline and strict accountability has transformed Rolls-Royce. We need more leaders like him.
6. Cash is still king
Prior to its resurgence, Rolls-Royce was drowning in debt. Restructuring to boost free cash flow was part of the recovery strategy. From net debt of £5.1bn in 2021, the group now has net cash to the tune of £1.9bn. Like profits, it shows up in the share price.
7. It helps to have a moat
Rolls-Royce has specialist engineering expertise. That makes life tough for competitors, helps retain clients and protects sales and pricing during a downturn. It’s also given Rolls a platform to bounce back from.
One stock, seven lessons. I could have listed plenty more. In fact, here’s one. The price-to-earnings ratio is still worth checking out. At Rolls-Royce, it recently hit a dizzying 65. That’s when the shares started to idle. The P/E has since retreated to 43. I still think that’s expensive, and I won’t be adding to my stake today as I have enough. With a £105bn market cap, it can’t repeat its stellar surge. I’m still expecting to be rewarded through steady growth, dividends and share buybacks. I’ll remember lessons 1 and 2, and I’ll stick with it.
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Harvey Jones owns shares in Rolls-Royce Holdings.
