Will Rolls-Royce become a penny stock again?

The Rolls-Royce share price has crashed as the new coronavirus variant makes investors nervous. Will it continue to fall and become a penny stock again?

| More on:

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Rolls-Royce (LSE: RR) stock had a really good run in the last quarter. In July, it was in penny stock territory. It had pulled out from those levels as the stock market rally of November 2020 began, after it had crashed as the pandemic began. By the end of September this year, the stock was flying, trading at 140p+.

It remained fairly elevated until recently, but last Friday was a disastrous day for it. The stock tanked by more than 11% as the Omicron variant impacted investor sentiment. It is now closer to 120p. This to me, raises the following question. Could it return to penny stock status again?

Why did the Rolls-Royce share price crash?

But first, why did the shares fall so much? After all, the FTSE 100 index fell by ‘only’ 3.6%. As I see it, there are two things to note here. First, by FTSE 100 standards, even 3.6% is a huge fall. It is the biggest one in 20 months. The last time it fell as much was at the start of April, 2020, which was shortly after the stock market crash of 23 March, 2020. At the time, there was still much uncertainty about how long the pandemic would drag on. It is possible that investors view the current situation similarly.

Next, the Rolls-Royce share price fell far more as it is closely linked to travel. And travel has been one of the worst affected industries because of Covid-19. It is little wonder that the shares recovered only a little in Monday’s trading.

And from what I can figure out so far, the variant could continue to keep the markets uncertain for the near future as well. This in turn could impact the Rolls-Royce share price. I believe that if news continues to get worse, it is possible that the stock would indeed revert to penny stock levels. 

The balancing factors

However, I think there could be balancing factors as well. In less than two weeks from now, the company releases its trading update. Since it has made some strong strides in the last quarter, I expect this to be more positive than not. Importantly, it has been able to meet its disposals target. Also, it has been signing new contracts, which might show up in its revenues. Its last results were also positive, which is encouraging too. 

And in any case, it is possible that the spread of the Omicron variant might be controlled soon. So on balance, I think there are factors that could keep its share price bmore uoyant. 

Would I buy the stock?

The critical question for me is whether I would buy the stock. To that, I would only say that I am encouraged by the positive developments for the company. However, I would have liked to see at least one more quarter of profits before deciding on whether or not to buy. And now my wait-and-watch time might have to be extended because of the latest developments on Covid-19. As before, it stays on my watchlist for now. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »