For a FTSE 100 stock, the Rolls-Royce (LSE: RR) share price has been very volatile. Since the start of the pandemic, it has become a bit of a Marmite share – investors either love it or hate it. With the emergence of the Omicron variant of the coronavirus, could the bears (that is, the pessimists who don’t like the company) once again get on top?
What’s happened to the share price?
Before we dig deeper, let’s first look back. The Rolls-Royce share price through much of 2018 was fluctuating around 300p. Looking further back, at the end of 2013, the shares hit an all time high of around 436p. Where are the shares trading at, at the time of writing? A lowly 116p.
In the time since the share price was above 300p, Rolls-Royce shares have been hit by issues with its Trent engines, and by the pandemic, plus as a result of both of these major issues, missed targets for cash flow in particular. The Trent engine problem is now solved, but its longer-term impact on relationships with customers is unclear. Put another way, has it tarnished the Rolls-Royce brand?
The emergence and rapid spread of Omicron once again poses a real risk to Rolls-Royce in my opinion.
But how about looking forward?
That’s all well and good, but what happens in the future is more important than the past. While that’s true, to have any chance of correctly guessing what might happen in the future and understanding if Rolls-Royce might be a good investment, it’s important for me to understand how the market treats this share.
Even if I were to take the view that Omicron won’t lead to significant travel restrictions, just the fear of it might be enough to send the share price down in the short term.
Add on top of that how much weaker the balance sheet is as a result of the pandemic and I don’t see a case for me to invest. I really do think Omicron is bad news for the Rolls-Royce share price.
The potential green shoots of a recovery, which in turn could lead to the share price rising, could come from Omicron not being as serious as previous variants of the virus, or from Rolls-Royce diversifying its earnings. However, the latter will likely take years and the value of its modular nuclear reactors and non-aerospace work will only slowly feed into the share price.
When all is said and done, I’ll be avoiding the Rolls-Royce share price. When it comes to industrial companies, I much prefer Melrose. As such, I will be focusing my research on it and digging more into that company.
The bottom line is, I feel, that the Rolls-Royce share price will keep falling. I think the bears are in the driving seat.
