How to buy and invest in Rolls-Royce shares
Rolls-Royce provides exposure to the aerospace, defence and engineering sectors. Here’s everything you need to know about investing in them.
Buying Rolls-Royce stock: how to invest
- Research Rolls-Royce shares
- Download the IG Invest app or open an online share dealing account
- Decide how much money you want to invest
- Make your investment
- Monitor your position
How much will it cost to buy Rolls-Royce stock?
|
Standard commission |
IG Invest |
£0* |
Hargreaves Lansdown |
£11.95 |
AJ Bell |
£5 |
Interactive Investor |
£3.99 |
*Other fees may apply
Rolls-Royce Holdings is a multinational aerospace, defence and engineering company. If you’re looking to get exposure to the synonymous car company, you’ll need to invest in or trade BMW shares – which owns the Rolls-Royce car brand.
What to consider before buying Rolls-Royce shares
Investing in stocks is not without risk and there’s always the chance potential losses may surpass your initial capital. To help prevent minimise this risk, it’s important to come up with a clear investment plan before buying Rolls-Royce stock. Here’s a few things to consider:
Understand your financial goals
Figuring out what you want to achieve in both the long and short term can help you decide how much capital to put into Rolls-Royce shares and how long to hold them before hopefully taking profit.
Know when you’ll need the money
If it performs well, buying Rolls-Royce stock could provide stronger returns than leaving cash in savings accounts where any growth is limited by interest rates.
For the best outcome, shares are typically held for over 10 years. This gives the stock enough time to significantly increase in value and recover from any potential crashes. If you need the money sooner, then safer options like high interest savings accounts or bonds may be a better option. If you’re still looking to invest, then it’s recommended you buy shares that are considered a lower risk investment.
Rolls-Royce is considered a medium risk investment. Although less volatile than most small cap companies, Rolls-Royce’s share price is closely tied to the cyclical nature of the aviation industry. This means it can be sensitive to economic downturns, fuel prices and geopolitical uncertainty.
Its diversified exposure to defense and engineering sectors however, hedges against this risk as it’s unlikely all three sectors will simultaneously underperform.
The stock provides a good balance between risk and growth potential and could be a good option if you’re looking to hold for a long period of time.
How much risk can you take?
Market fluctuations are often volatile and it’s always possible that you could lose your initial investment if the market turns against you. It’s therefore important to develop a risk management strategy to mitigate this risk.
Here are some ways you could manage this risk:
- Diversify your investments across different industries and asset classes
- Hold Rolls-Royce stock for at least a decade to capitalise on long-term growth
- Stay informed on market trends and geopolitical events that could impact performance
How to research Rolls-Royce stock as an investment
One method of reviewing the performance of Rolls-Royce shares is through fundamental analysis. This approach looks into financial reports and other external factors that may impact the stock’s performance.
Earnings per share
Earnings per share (EPS) shows how much Rolls-Royce makes for each share of its stock. It is calculated as net profit divided by the total number of outstanding shares – and a high EPS could indicate that the stock is undervalued.
P/E ratio
P/E ratio shows how much you would have to invest in Rolls-Royce to receive £1 in profit. The P/E ratio is calculated by dividing a company’s share price by its EPS – and a low P/E ratio might show that a company’s stock is currently undervalued
Once you’ve established the P/E ratio of Rolls-Royce, it’s recommended you compare it to other aerospace and defense companies. A low P/E ratio in comparison to competitors could indicate that Rolls-Royce shares are overvalued, while a high P/E ratio could imply it’s overvalued.
Return on equity
Return on equity (ROE) is the amount of income that a company is generating relative to the amount of equity it has generated through shareholder investments. ROE is calculated by dividing a company’s net income by its shareholder equity and multiplying that figure by 100 to get a percentage.
Why buy Rolls-Royce shares?
Investing in Rolls-Royce shares provides you with exposure to the aerospace, defense and engineering sectors. Its diversified operations help reduce risk as it’s unlikely all sectors will underperform at the same time.
Strategic changes put in place by CEO Tufan Erginbilgic have proved successful and the company’s share price has increased significantly since they were put in place. Many analysts believe the stock continues to have significant growth potential.
Around 25% of its revenue comes from defense, where the company develops, manufactures, markets and sells the engines of combat jets, transporters, helicopters and aerial vehicles to governments and military organisations around the world. Over the next few years, it’s likely that geopolitical tensions will remain high, and governments will increase their defense spending. This could positively increase Rolls-Royce’s profit margins.
The company also produces and services large engines for long-haul flights. This has proved profitable and during periods of economic growth the aerospace sector tends to perform well.
Rolls-Royce shares could be a strong long-term investment if you’re bullish about the performance of the aerospace, defense and engineering sectors.
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What to do after you buy Rolls-Royce shares
Once you’ve invested in Rolls-Royce shares, it’s important to consistently monitor its progress through our app or online platform. Following market trends allows you to swiftly adapt to potential risks and opportunities.