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Rolls-Royce Holdings plc
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=== Relative Valuation === Trading comparable analysis was used to compare Rolls Royce to its competitors in the market. A range of different multiples are used to evaluate if the current share price of Rolls Royce is fairly priced or under/overvalued. <ref>https://www.alphaspread.com/security/otc/rycey/relative-valuation</ref> {| class="wikitable" | !Market Cap !Price / Sales !Price/Earnings per Share !EV/EBITDA !EV/EBIT !'''PEG''' !'''Growth Adjusted P/S''' |- |'''Rolls-Royce''' |17.3B USD |1.3 | -13.6 |11.3 |25.7 | - |6.5 |- |'''Boeing Co''' |139B USD |1.9 | -31.2 | -115.5 | -50.9 | - |3.6 |- |'''Raytheon Technologies''' |123B USD |1.7 |22.1 |14.8 |24.9 |24.3 |6.5 |- |'''Airbus SE''' |103B EUR |1.8 |29.5 |14.9 |24.3 |46.1 |4.3 |- |'''Lockheed Martin''' |112B USD |1.7 |15.9 |12.6 |14.6 |53.0 |18.9 |- |'''Safran SA''' |62.1B EUR |3.2 | -25.2 |15.2 |22.9 | - |6.7 |- |'''Northrop Grumman''' |66.4B USD |1.8 |14.3 |15.4 |21 | -119.2 |10.0 |- |'''General Dynamics''' |61.2B USD |1.5 |18.2 |13.5 |16.4 |55.2 |7.5 |- |'''TransDigm Group''' |49.2B USD |8.3 |51.3 |23.3 |25.7 |37.4 |18.9 |- |'''BAE Systems''' |31.1B GBP |1.5 |19.5 |11.5 |15.5 |52.7 |5.2 |- |'''L3harris Technologies''' |35.3B USD |2 |44 |15.9 |24.9 |28.0 |12.5 |- | | | | | | | | |- |'''Median''' | |1.8 |18.2 |14.8 |22.9 |41.8 |6.7 |- |'''Mean''' | |2.4 |13.2 |3.0 |15.0 |22.2 |9.1 |- |'''Lower Quartile''' | |1.6 |0.4 |12.1 |16.0 |27.1 |5.8 |- |'''Upper Quartile''' | |2.0 |25.8 |15.3 |24.9 |52.8 |11.3 |- |'''Maximum''' | |8.3 |51.3 |23.3 |25.7 |55.2 |18.9 |- |'''Minimum''' | |1.3 | -31.2 | -115.5 | -50.9 | -119.2 |3.6 |} The valuation multiples are expressed in the bar charts with the industry median and the value of the respective multiple for Rolls Royce, highlighted using a dotted line. [[File:Final P-S.png|none|thumb|786x786px]] P/S β Price to Sales ratio evaluates how much an investor values each dollar of sale generated by the company. The average P/S ratio in the industry is 1.8 while the P/S ratio of Rolls Royce is 1.3. A low P/S ratio suggests that the investors are willing to pay a lower price per dollar of sale generated implying an undervaluation. The implied share price is GBX 291.05 whereas the trading share price as of 11/08/23 is GBX 207.90. <ref><nowiki>https://www.investopedia.com/terms/p/price-to-salesratio.asp</nowiki></ref> Revenue of Β£ 13.5 billion <ref>https://uk.sports.yahoo.com/news/rolls-royce-holdings-full-2022-071927733.html</ref>and 8.3 billion outstanding shares <ref>[https://www.macrotrends.net/stocks/charts/RYCEY/rolls-royce-holdings/shares-outstanding#:~:text=Rolls%2DRoyce%20Holdings%202022%20shares,a%2039.5%25%20increase%20from%202020. https://www.macrotrends.net/stocks/charts/RYCEY/rolls-royce-holdings/shares-outstanding#:~:text=Rolls%2DRoyce%20Holdings%202022%20shares,a%2039.5%25%20increase%20from%202020.]</ref> in 2022 were considered in order to obtain the implied share price from the median P/S multiple. [[File:Final PE.png|none|thumb|1042x1042px]] P/E β Price to Earnings ratio shows how much an investor is willing to pay per dollar of earnings generated. It portrays an investorβs expectation of the future earnings of the company. The average P/E ratio in the industry is 18.2 while the P/E ratio of Rolls Royce is -13.6. A low P/E ratio suggests that the investors are willing to pay a lower price per dollar of EPS generated implying an undervaluation. A negative P/E ratio results from the negative earnings per share. <ref><nowiki>https://www.investopedia.com/terms/p/price-earningsratio.asp</nowiki></ref> [[File:Final EV-EBITDA.png|none|thumb|1164x1164px]] EV/EBITDA β The ratio evaluates the enterprise value of the company (considering all debts and liabilities) with respect to the operating performance of the company. The average EV/EBITDA ratio in the industry is 14.8 while the EV/EBITDA ratio of Rolls Royce is 11.3. A low EV/EBITDA ratio suggests an undervaluation. <ref><nowiki>https://www.investopedia.com/terms/e/ev-ebitda.asp</nowiki></ref> [[File:Final EV-EBIT.png|none|thumb|1024x1024px]] EV/EBIT β The ratio evaluates the enterprise value of the company (considering all debts and liabilities) with respect to the operating earnings of the company. The average EV/EBITDA ratio in the industry is 22.9 while the EV/EBITDA ratio of Rolls Royce is 25.7. A high EV/EBITDA ratio implies an overvaluation. <ref><nowiki>https://www.investopedia.com/terms/e/ebit-ev-multiple.asp</nowiki></ref> [[File:Final Growth adjusted P-S.png|none|thumb|827x827px]] The growth adjusted P/S is the ratio of P/S to the growth in revenue. The growth adjusted P/S for Rolls Royce (6.5) is noticeably smaller than the industry median (6.7). The implied share price is GBX 215.59 while the share price as of 11/08/23 is GBX 207.90 implying an undervaluation.
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