Up over 100% in 6 months, is now the time to buy Rolls-Royce shares?

It can be frustrating when the stock I see has gone up so much in such a short period of time. That’s basically what happened with it Rolls-Royce (LSE: RR) shares.

I have witnessed them more than twice in the past 26 weeks as I sit on my hands. When I have less gray hair than I do today, I might buy stocks that are going up because of fear of missing out (FOMO).

But over time I learned to stop doing that, because Mr. Market has a bad habit of giving me shares for less than I paid for them. Sometimes patience can be a virtue.

Anyway, I noticed that the Rolls-Royce share price has leveled off in the last month. So now is a good time for me to invest?

The turnaround continues

At the end of February, the engine manufacturer reported full-year results for 2022. And there are many reasons for optimism.

Its revenue rose to £13.5bn, up from £11.2bn in 2021. Meanwhile, it recorded £652m in underlying profit, which is £238m higher than the previous year.

Importantly, the recovery of engine flying hours helped increase free cash flow to £505m. That is up by a massive £2bn over 2021. While this is still not enough to put a major dent in its £3.3bn net debt, which remains a concern, it is a very encouraging sign.

The Civil Aerospace division remains the largest. So restarting travel in and out of China is a big deal for the company. Its engines power 60% of China’s widebody aircraft and 90% of the country’s Airbus A330 fleet.

Today, China’s middle class numbers more than 400m people. And the country is expected to overtake the US as the world’s largest passenger aviation market by 2030. So long-term demand for the company’s engines appears to be increasing.

Optionality

One of the things I love about business is that it’s optional. That is, the company’s ability to identify and capitalize on new growth areas. This gives you different ways to grow and, I believe, a greater chance of success in the long run.

For me, Rolls-Royce has too many options.

The Power System segment continues to grow. And the Defense division just announced a deal to supply reactors for Australia’s new nuclear (albeit not nuclear-armed) submarine fleet. It is part of a large defense agreement between Australia, the UK, and the US.

In addition, the company just received funding to build a small nuclear reactor for a planned permanent human base on the Moon.

I think the company has many ways to win.

Should I buy the stock?

I have become increasingly bullish on Rolls. In fact, I think we may be on the cusp of a multi-year stock price.

Of course, if the company is moving forward, it is mainly to reduce the debt pile. But I don’t see why we can’t reopen China’s borders and refocus on operational efficiency.

Furthermore, the stock is still 62% lower than it was a decade ago, despite recent gains.

I’ve seen enough progress to warrant moving the stock from my watch list to my buy list.