It’s safe to say the last few years have been turbulent for Rolls-Royce (LSE: RR). The FTSE 100 constituent was massively impacted by the Covid-19 pandemic. And even prior to the outbreak the firm was struggling with cash flow issues. These struggles seem to have spilled over into 2022, and are reflected in the Rolls-Royce share price. Year-to-date, the stock is down 30%.
However, where will it go next? And does this fall mean I should be loading up on RR shares? Let’s find out.
The Rolls-Royce share price in 2022
Before we look at whether I’d buy Rolls-Royce shares today, let’s begin by looking at its performance year-to-date.
The stock entered the year trading for near 130p, a mere slither of the 300p price we saw pre-pandemic. And since then, Rolls-Royce has continued to fall.
However, late March saw the share price jump amid takeover rumours. As stories circulated via the Betaville website that the firm could soon be involved in a “significant corporate transaction,” investors rushed to purchase shares. The stock spiked 20% on the back of the news.
Wider outlook
Since then, the share price has fallen below the 100p barrier once again.
One reason for this is due to the hit Rolls-Royce took yesterday as JP Morgan downgraded the stock to ‘underweight’, as well as cutting its target price from 140p to 75p. Informing investors, it stated that the ‘New Markets’ division may offer “good long-term sales potential,” but that there is “no guarantee of good profits.” It further mentioned how it “might even be loss-making into the 2030s.” This is clearly not good news. And the 5% fall seen yesterday reflects this.
Yet, I think there is still hope for Rolls-Royce.
This is in part due to the full-year results released a few months ago. A standout figure was the firm’s statutory profit, which for the period was £124m. Given that in the year prior this was a £3.1bn loss, it’s clear to see the progress Rolls-Royce has made post-Covid.
Another factor is increased air travel. Rolls-Royce generates a large proportion of its revenues from servicing commercial jet engines. With passenger volume beginning to edge ever closer to the levels seen pre-pandemic, this should provide a boost for the firm.
However, rising Covid cases, alongside continuing travel problems, mean that passenger volumes may be adversely impacted. As cases continue to rise in places such as China, any future limitations on international travel will negatively impact Rolls-Royce shares.
Where next for Rolls-Royce?
So, where will the shares go next? Despite the issues, I do see promise. The firm has shown it has begun to take strides to get back to pre-pandemic levels. And despite the issues seen, over the long term, demand for travel will continue to rise. For example, easyJet has stated that summer bookings over the past six weeks are above pre-pandemic levels.
However, I think the firm may struggle in the short term as it continues to recover from its Covid hangover. Rising cases, along with the problems we are currently seeing in the travel industry, will most certainly dent investor confidence surrounding Rolls-Royce. Therefore, while I see potential in Rolls-Royce, I’ll only be placing the stock on my watchlist and monitoring its movements over the coming months.
