Why the Rolls-Royce share price fell 18% in April, and where it might go in May

The Rolls-Royce share price dipped in April, but I’m optimistic about the long-term prospects ahead of a trading update on 12 May.

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The Rolls-Royce (LSE: RR) share price declined 18% in April, reversing the positive sentiment that had been breaking out the previous month.

So far in May, there’s been little movement. But we have a trading update on the 12th, so investors might just be pausing a little in anticipation of that. I’ve been thinking about what I hope to hear from it.

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April’s decline puts Rolls-Royce shares on a drop of 30% since the start of 2022. But over a full 12 months, we’re looking at a 17% fall overall:

New wartime valuation

The Rolls share price took a tumble in February after Russia invaded Ukraine. And I think what we’re seeing is investors adjusting to a new valuation now the war looks like it will be going for some time.

I’m more interested in where the Rolls-Royce share price might go in May and beyond. The 12 May update is due on AGM day, and I will have my eye on a few things.

It looks like the aviation industry is set for increasing demand. Now I come to renew my passport, I find it taking a couple of months for some people to get them. That’s how much pent-up demand has built during the pandemic.

Any more news on the travel front during the month could help airline stocks. Q1 updates from airlines are coming, so I’ll be watching for progress there. What’s good for airlines should also be good for the Rolls-Royce share price.

AGM focus

The Rolls-Royce AGM update will, I suspect, focus on revenue, order book demand, and trends like that. Those are key factors, and early progress in 2022 will surely be upmost in shareholders minds.

The company is also keen to improve its credit rating. So any positive news there could well give the shares a bit of a May boost.

I see downsides at the moment, which would hold me back from buying. Cash flow is key, and that was negative in 2021. Rolls hopes to achieve modest positive cash flow in 2022, but reckons it’s likely to be weighted towards the second half.

Any hints of an improvement in that outlook would be another big positive, in my book. But with the Ukraine effect, I’m not too hopeful of progress. The key thing for me is that the positive cash flow outlook does not slip to next year. Any weakening outlook on the cash flow front could tip the shares downwards.

Rolls-Royce share price uncertainty

On balance, I am convinced the Rolls-Royce share price dip in April is mainly down to uncertainty and fear. And if the AGM can give us any reassurances, then I hope Rolls shares will end May at least with no further falls. Any progress on a few key factors, and I think we could see a monthly gain.

For the long term, I feel reasonably optimistic for Rolls-Royce’s outlook — even if there’s still enough risk to stop me buying just yet.

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Alan Oscroft 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.

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