My Rolls-Royce shares are up 25% in 2 months. Should I buy more?

My only regret about the purchase Rolls-Royce (LSE: RR) shares on November 1 I did not buy any more. They have been an instant hit in my portfolio, rising 26.19% in two months.

I spent years debating whether to buy the stock, and in retrospect I’m glad I didn’t buy it sooner. They have suffered a bad slide for some time, down 18.51% in one year and 65.1% in five years.

So glad I bought it

Last fall, I decided the sale was over, and swooped. Of course, two months tells very little. When I buy stocks, my time is 15 to 20 years. I am not a trader, but a long term investor.

So, I don’t think about my good fortune and move on. Just reverse it. The question is whether I buy more Rolls-Royce shares, instead of selling what I have.

Rolls-Royce has been flying behind more FTSE 100 return. At the same time, the index rose 7.32% from 7.186 to 7.712. Sentiment is improving across the board, as investors look forward to peak inflation and lower interest rates later in the year

I imagine that many people will target Rolls-Royce, precisely because it sold off more than most in the slump.

There is also some good news coming out of the company. Two days after the share purchase, Rolls-Royce published annual guidance showing that cash flow remained strong through the year’s market turmoil and inflation.

The company builds aircraft engines and is paid on a per-mile basis, thus benefiting from the post-Covid travel industry recovery. That’s good news but the recovery is hanging on China’s Covid problem and the global recession.

Demand is also affected by inflation, although many long-term contracts contain inflation-linked price clauses. The instructions have not changed, which in these difficult times is seen as a sign of success.

Share value of the FTSE 100

Shares of Rolls-Royce were handed a further boost by Barclays Analysts claim that the stock is a “unlock values”and a major contract win from the US military to replace the Black Hawk utility helicopter.

The company’s plans to pepper the UK with 30 small-scale nuclear reactors have also been cast in doubt.

Rolls-Royce still has a long way to go, especially with nuclear. It doesn’t pay dividends, and its profit margin is just 4.7%. JP Morgan recently noted that net debt is around £15bn if you include customer advances, pension obligations, loan money for joint ventures and cash provisions, making the balance sheet “very weak”. It set a target share price of 70p a share, which is worrying given that the stock is currently trading at 103p.

I’m happy to have bought a Rolls-Royce, but I’m not in a rush to buy another at today’s price. However, I will hunt for other cheap opportunities and leave my current stock to prove its worth.