LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 (UKX) and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at Rolls-Royce  to determine whether you should consider buying the shares at 905 pence.


I am assessing each company on several ratios:

  • Price/Earnings (P/E): Does the share look like a good value when compared against its competitors?
  • Price Earnings Growth (PEG): Does the share look like a good value factoring in predicted growth?
  • Yield: Does the share provide a solid income for investors?
  • Dividend Cover: Is the dividend sustainable?

So let's look at the numbers:

Stock

Price

3-year EPS Growth

Projected P/E

PEG

Yield

3-year Dividend Growth

Dividend Cover

Rolls-Royce

905p

22%

15.9

0.8

2%

17%

2.9

The consensus analyst estimate for this year's earnings per share is 56.9 pence (19% growth) and dividend per share is 19.6 pence (12% growth).

Trading on a projected P/E of 15.9, Rolls-Royce appears significantly more expensive than its peers in the aerospace and defense sector, who are currently trading on an average P/E of around 11.3.

However, Rolls-Royce's strong near-term growth rate and relatively high P/E give a PEG ratio of around 0.8, which implies the share price is quite cheap for the near-term earnings growth the firm is expected to produce.

Furthermore, Rolls-Royce offers a 2% yield, which is slightly below the sector average of 2.3%. That said, Rolls-Royce does have a three-year compounded dividend growth rate of 17%, implying the payout could soon catch up to that of the company's peers.

Indeed, the dividend is just under three times covered, giving Rolls-Royce plenty room for further payout growth.

Does Rolls-Royce deserve the premium placed on the shares?
At first glance, I can see that many people would think that Rolls-Royce is overvalued compared to the rest of its competitors. However, under further analysis the company does appear to be worth its premium.

For instance, the company has managed to improve its earnings per share by roughly 10% every year since 2007. In addition, as I have stated above, Rolls-Royce is forecast to continue this trend this year. Furthermore, investors have reaped the benefits with the shares up 90% during the last five or so years.

Many City analysts are worried about the slowdown in global defense spending and how it will affect Rolls-Royce. However, I am not as worried; I believe Rolls-Royce has many other markets to take advantage of, including the civil aviation and power generation sectors -- both of which are still seeing growth.

Unfortunately, there is one large issue currently overhanging Rolls-Royce, which is the widely publicized investigation being conducted by the Serious Fraud Office into allegations of bribery.

This investigation has added some uncertainty to the company over the possibility of prosecution and fines. Although the situation remains unclear, I do not believe any prosecution brought against Rolls-Royce will significantly harm the company's long-term reputation.

Anyway, based on the group's near-term earnings potential and strong historic performance, I believe now looks to be a good time to buy Rolls-Royce at 905 pence.

More FTSE opportunities
As well as Rolls-Royce, I am also positive on the FTSE shares highlighted in "8 Dividend Plays Held by Britain's Super Investor." This exclusive report reveals the favorite income stocks owned by Neil Woodford -- the City legend whose portfolios have thrashed the FTSE All-Share by 200% during the 15 years to October 2012.

The report, which explains the full investing logic behind Woodford's dividend strategy and his preferred blue chips, is free to all private investors. Just click here for your copy. But do hurry, as the report is available for a limited time only.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.

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The article Could Now Be the Time to Buy Rolls-Royce? originally appeared on Fool.com.

Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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