Rolls-Royce shares are up 30% in 3 months. Here’s why I wouldn’t touch them today

I’ve been feeling amazing since I bought it Rolls-Royce (LSE: RR) shares on November 1 as they jumped for the third time since then.

I think I got the point in time, after watching him slide non-stop for five years or so while waiting for his moment. Or so I thought, until I saw that brutal put down from FTSE 100 company’s prospects by none other than its new boss.

For once I got the timing right

CEO Tufan Erginbilgic began his tenure at the aero engine maker by confronting staff with an unpleasant reality. He labeled the group of techniques a “fire platform” and said “Given everything I know talking to investors, this is our last chance”.

He added that Rolls-Royce has “It’s been a long time since I performed”position is there “unsustainable” and Covid is not to blame. Of course, Covid has a negative impact on profits, due to the collapse of international and long-distance travel, but Erginbilgic does not want the staff to use that excuse anymore.

To be generous, I would call it tough love. Alternatively, it can backfire by damaging morale due to job losses. He certainly took a very different approach to his former boss Warren East, who claimed in 2021 that the company “on track for growth” after the nightmare of 2020, when it posted losses of £4bn and cut thousands of jobs.

Despite the recent recovery, Rolls-Royce shares are still down 10.27% in one year and a whopping 64.85% in five years. I might find myself celebrating the bounce of a dead cat, unless Erginbilgic can match words with action.

Rolls-Royce is not a burning case. In December, it won up to $5bn-$6bn in production and $6bn-$7bn in service contracts from the US military. It can also enjoy a lift-off when China reopens, which is expected to trigger a clear recovery in air travel, because the Rolls-Royce aircraft engine comes with a profitable maintenance contract based on miles flown.

Now for a really hard bit

Debt is no longer a concern, having paid off £2bn last year, although it still has £4bn of outstanding debt.

Timur was liked by many and saved Rolls-Royce from collapse without turning the business into the boom it wanted to see. Erginbilgic should get that, somehow. He couldn’t rely on his people’s skills, of course. Nor can they expect to cut costs, as Timur has been doing for years.

That can boost the wafer group thin 4.6% profit margin, but what investors really want for the company to get on the front foot and start growing again. The proposed fleet of mini nuclear reactors is promising, although it depends on the UK government finally getting its energy policy right, which is another worry.

I’m glad I bought Rolls-Royce shares when I did, but I’m not in a hurry to top up my holding. I bought it because they fell so far it seems cheap. The moment has passed. Now I’ll wait and see if the macho new boss turns this crate around or crashes it for good. It will be one or the other.