Rolls Royce (LSE:RR.) shares have been on the rise since Tufan Erginbilgiç moved into the corner office in 2023. The engineering giant had been struggling with its growing debt mountain for years. And after the pandemic decimated its revenue streams, the company was on the brink of bankruptcy.
Today, things are very different. After some radical changes to the company’s structure, the company is finally generating significant operating profits again. In 2023, it even achieved record-breaking free cash flow, allowing management to start paying off its debt.
It is extremely rare for a company to recover so quickly. And Rolls-Royce went from being one of the worst performing stocks in FTSE100one of the best. But with all this volatility, how much money have investors made over the last five years?
The value of a £5,000 investment in 2019
In July 2019, Rolls-Royce shares were trading at just under 290p, so ignoring dealing fees, a £5,000 investment would have meant around 1,725 shares. Later that year, the company paid a dividend of 1.58p, giving a total of £27.26 based on our initial investment.
Although it is not a game-deciding sum, reinvesting this capital would have enabled the purchase of another 11 shares, bringing the total to 1,736. Unfortunately, the pandemic came along and put a huge damper on the whole thing. As a result, the dividends were completely canceled and have not paid out to this day.
So how has the share price performed? After falling to a low of 35p in October 2020, it has since exploded. They are now trading for almost 450p – representing a 1,186% return for those who start buying at these dirt-cheap prices.
At this price, 1,736 Rolls-Royce shares are currently worth around £7,812. So for those who invested in July 2019, the stock has delivered an impressive total return of 56%. On an annualized basis, this equates to 9.3% per year, slightly above the typical returns achieved by the UK stock market.
Is Rolls-Royce a good investment today?
With bankruptcy no longer a serious threat and the business now churning out cash, Rolls-Royce seems like an interesting opportunity for long-term investors. After all, the travel industry has almost fully recovered from the pandemic, defense spending is rising due to geopolitical conflicts, and nuclear power is becoming increasingly popular. These are all healthy tailwinds that Rolls-Royce can benefit from.
But as encouraging as this potential may seem, expectations should not be overstated. Many of these growth opportunities are already factored into the share price. At least, that is what the company’s valuation suggests. And although debt is gradually coming under control, the group still has a net debt risk of £2 billion, resulting in annual interest costs of £369 million.
As a company, Rolls-Royce appears to have a promising future. But as a stock, investors may have been too quick to get excited about its success. Erginbilgiç still has a lot of work to do. And at this point, it is unclear whether the group’s performance is primarily due to prudent leadership or a recovering macroeconomic environment. Or perhaps a mix of both.
The post If I Invested £5,000 in Rolls-Royce Shares 5 Years Ago, Here’s What I’d Have Earned Today appeared first on The Motley Fool UK.
Further reading
Zaven Boyrazian does not own any of the stocks mentioned. The Motley Fool UK has recommended Rolls-Royce Plc. The views expressed on companies mentioned in this article are those of the author and may therefore differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
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