Here are some not-so-fun facts about the Rolls-Royce (LSE: RR) share price. In the past month, it has fallen by around 17%, as I write. Covid-19 cases have sent parts of China into lockdown and there are new variants around elsewhere as well. So maybe that explains it.
The Rolls-Royce share price keeps falling
Here is the next fact. In the past three months, it has dropped even more, by around 25%. This too has an explanation. Inflation has been on the rise, which could impact the company’s big civil aviation business. Rising prices can impact consumers’ discretionary spending, including for airline tickets.
And finally, over the past six months, the Rolls-Royce share price has dropped even further, by more than 35%! This too has a very good reason. In early November 2021, we had no idea that the Omicron variant was going to rock the markets and create investor uncertainty for the coming months for travel-related stocks.
Every cloud has a silver lining
But here is where it gets interesting. Over the past year, the stock is still down, but by a far smaller 18%. This demonstrates that, in the interim, it rose much more and then fell back to penny stock levels. It also means that, in good times, the Rolls-Royce share price can indeed rise.
And even with all its ups and downs, the past year has indeed been good times for the FTSE 100 index. It was just below 7,000 levels at this time last year, and has risen by over 8% since.
Risks ahead
It follows then, that there is some chance that the Rolls-Royce share price could rise again if the larger macro picture stabilises. The question, though, is whether it will or not. From the looks of it, I think the odds do not look particularly good. Growth is expected to be far more muted in 2022, compared to what was forecast even a few months ago.
The Russia-Ukraine war has exacerbated inflationary pressures. Households across the UK, and I expect around other parts of the world, are experiencing rising bills and the situation as also been called a “cost of living crisis”. This will likely further impact demand, including travel demand.
And if the coronavirus situation gets worse, I think it is entirely possible that the Rolls-Royce share price could crash, along with the rest of the stock market. Can it fall to 50p, though? I would not rule that out. In October 2020, the stock had crashed to sub-40p levels, when it looked like there was no way out of the pandemic and the company’s business was stalled to a significant extent.
What I’d do
That is the worst-case scenario, though. More realistically, I think it is likely that the stock will continue to show uneven movement. At best, it remains one for short-term speculative buying and not one for long-term investment, for now. Pity, really, considering how much work it has done to restructure and come back into black. I do not think it is a buy for me for now, but I will continue to watch it.
