The Rolls-Royce share price falls 20%. Here’s why I think the FTSE 100 share can’t be ignored
The Motley Fool
Published Nov 07, 2018 11:39
Updated Nov 07, 2018 12:16
It’s been a tough four months for investors in Rolls-Royce (LSE: LON:RR). The company has recorded a share price decline of around 20% during that time. Fears surrounding the global growth outlook, as well as geopolitical risks, have weighed on investor sentiment.
In the short run, there could be further falls ahead. But in the long run, the company could offer recovery potential. Is it therefore worth buying alongside another falling stock which released a profit warning on Wednesday?
Disappointing update The company in question is support services business G4S (CO:G4S) (LSE: GFS) . It released a trading update for the three months to 30 September, with organic revenue of 2.5% being up on the 0.2% growth recorded in the first half of the year. The company delivered strong organic growth rates in security services in North America and Asia, as well as in cash technology solutions. This growth, though, was offset to some extent by lower revenues in Benelux and in conventional cash services.
Looking ahead, the company expects to report profit for the full year which is in line with the previous year. This is somewhat disappointing, and is likely to be the key reason for the stock’s 9% decline following the update.
While G4S may be unable to deliver improving profitability in the current year, it seems to be well-placed to perform well next year. It is expected to post a 12% rise in profit in 2019, with it having a high-quality pipeline according to the update. With its shares trading on a price-to-earnings growth (PEG) ratio of around 1, they could offer growth potential over the long run.
Improving prospects As mentioned, the Rolls-Royce share price has endured a challenging recent period. Investors seem to be uncertain about the prospects for the world economy, with the potential for further tariffs on imports in countries such as China and the US. Alongside this, the US economy is performing relatively well according to recent GDP figures. As such, a rising US interest rate could lead to a squeeze on businesses and consumers not only in the US, but also across much of the developing world.
Therefore, it is perhaps unsurprising that Rolls-Royce has experienced a share price decline. The company now trades on a PEG ratio of around 0.3, which suggests that it could offer good value for money. It may also continue to benefit from the cost reductions it is seeking to make as it aims to become a leaner and more flexible business over the medium term.
Get The App
Of course, further share price declines cannot be ruled out in the near term. Investor sentiment may take time to recover. But with the business having the potential to expand its addressable market in civil aviation through new products and being expected to benefit from rising demand for defence products, it could enjoy a period of strong growth in the coming years.
us better investors.
Written By: The Motley Fool
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.