In the last month the Rolls-Royce Holding PLC (LON:RR) (RR.L) share price has risen by around 5%. This follows a period of significant falls for the aerospace and defence firm which saw it decline from almost 1100p in August to 785p a few months later.
Clearly, the company’s rise in market value in the last month is relatively impressive. However, I remain cautious about its near-term outlook. There continue to be dangers ahead for the world economy to my mind, with the prospect of further tariffs on imports having the potential to hurt investor sentiment towards international operators.
That said, in the long run I’m upbeat about the outlook for the Rolls-Royce share price. I feel that the company could offer growth potential due in part to the increasing spending in the defence sector which is anticipated across NATO members. The US, for instance, is increasing spending on the military at a fast pace under President Trump, while other NATO members are set to deliver on the agreement to spend at least 2% of GDP on the military.
Further, the world economy continues to grow. As a result, 2% of GDP is increasing in terms of its absolute size, and this could create a catalyst for operators in the segment.
I also think that Rolls-Royce’s decision to expand its aircraft engine operations to include narrow-bodied aircraft from the mid-2020s could lead to improving financial performance. It could increase the size of its addressable market at a time when the number of aircraft in the sky is expected to increase significantly.
As a result, I think there could be further volatility ahead for the stock in the near term after what has been a challenging six months. But in the long run, I feel that it could benefit from improving operating conditions and may be able to outperform the wider FTSE 100.