My Rolls-Royce shares are up 75% in 4 months. Should I sell, hold, or buy more?

It’s a great feeling when you buy a recovery stock and it goes off like a rocket, like Rolls-Royce (LSE: RR) shares only have.

I am very happy because I have been watching the stock for five years, waiting for an entry point. I finally decided that the fortune of the company could not sink much lower, and swooped on November 1. Good timing is down to luck as much as judgement, of course. No one can predict the movement of stock prices with consistency.

This aircraft engine manufacturer flies

I bought Rolls-Royce shares because I thought they were cheap as chips. They are currently 76% higher, so should I pay profit, sit back, or buy more?

Truth be told, there is no way I’m going to make a profit. I never buy stocks with a short-term perspective. I did not buy Rolls-Royce for a quick capital hit, but to generate both growth and income over the long run.

Although in FTSE 100 The aircraft engine manufacturer canceled its dividend in 2019, as a condition of some loan facilities, I hope that will change. The board may recommend a shareholder payout in 2023, “subject to the satisfaction of the situation and consideration of the progress made to strengthen the balance sheet”.

If not, we can expect shareholder payouts “in the medium term”, which is fine by me. There is a medium term, ie. The incoming CEO Tufan Erginbilgic shocked investors and staff by labeling a new power “fire platform”add “this is our last chance”.

Soon, stock prices went gangbusters. Either investors saw Erginbilgic as the fire extinguisher Rolls-Royce needed, or they never took it “last chance” serious stuff. I bet it’s both.

In to carry long

The stock’s jet-like recovery was turbo-charged by last week’s rise in operating profit, which jumped 57% from £414m to £652m. This is due to the increase in international travel after the pandemic, which benefits Rolls because of its aircraft engine maintenance contracts based on hours flown (which increased by 35%). Revenue rose 20% from £11.2bn to £13.5bn.

Erginbilgic previously told Rolls-Royce staff that he could not use Covid as an excuse, which may be good psychology but not entirely true. As the results show, the Covid lockdown has had a big impact.

I also like the latest decline in net debt. It is now around £3.3bn, down from £5.2bn at the end of 2021, due to better disposals and cash flow. Rolls-Royce also had strong new order wins in its Aerospace and Civil Defense operations, and a record order book in Power Systems.

There is still a long way to go, as Erginbilgic already knows. Rolls-Royce’s transformation program still has a long way to go before it takes the company (and its share price) to the next level.

I’m not in a big rush to add to my holding after the recent increase. I will sit tight and enjoy the sweet smell of the (short-term) success of the share price, boosted by the low entry price.

However, I’d like to find more FTSE 100 stocks, preferably ones that aren’t just three-quarter rockets. I think there are many out there.