Why the Rolls-Royce share price fell in October
The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.
At the end of September, the Rolls-Royce (LSE:RR) share price closed at 140p. Given the close last month at 132p, this represents a fall of just over 5%. This isn’t the end of the world, with the shares up 87% over a broader one-year period. Yet if I’d bought any shares at the start of October, I’d want to know what had been going on. So here’s some more information on what happened last month.
A small fall when looking at the bigger picture
The first reason why the Rolls-Royce share price fell last month is just to do with the timeframe captured. Back in the middle of September, the share price was trading around 105p. It then went on a strong rally in the back end of September, peaking at 147p during the last week of the month.
So the stock was already entering October having seen a strong push already. After a large move higher in a short space of time, stocks do tend to retrace slightly and consolidate. This means that the price level tends to move sideways as investors catch their breath after a move and decide whether the next move will be higher or lower.
The bottom line here is that October was a consolidation period for the stock after the rally in late September. So although the price did actually fall a few percent, it needs to be looked at in a slightly longer-term context.
Less optimism around travel
Another reason why I think the shares fell is the unfulfilled optimism regarding the loosening of travel restrictions. In September, the share price jumped thanks to a simplification of the UK traffic light system for international travel. Added to this were plans to make it easier and cheaper to test travellers entering the country. In the US, it was confirmed that vaccinated passengers would be able to travel in from the EU and UK from November onwards.
Given that Rolls-Royce is indirectly tied to the fate of the travel industry due to the commercial aviation arm it operates, all of this news sounded good. Yet since then, the good news hasn’t really held up. Here in the UK, Covid-19 infections and hospitalisations have risen over the past few weeks. There’s still speculation around restrictions heading into the winter. This would clearly inhibit travelling abroad to some extent.
Therefore, I think some pessimism is being priced into the Rolls-Royce share price to reflect this view.
Where the Rolls-Royce share price could head from here
Clearly, the next year is very important for the company. It’ll dictate whether the recovery from the large loss in 2020 can be continued, and if the business can push forward with the transformation. I think some of this will be out of the hands of the management team. Rather, it’ll depend on how international travel performs, related to Covid-19.
I personally won’t be buying RR shares right now. For a more in-depth look at the bull vs bear case on the stock, a great piece from The Motley Fool team can be read here.
5 Stocks For Trying To Build Wealth After 50
Markets around the world are reeling from the coronavirus pandemic…
And with so many great companies still trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.
Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…
You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.
That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.
Click here to claim your free copy of this special investing report now!
jonathansmith1 and the The Motley Fool UK have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.