Can the Rolls-Royce share price surge if it overcomes this huge trend?

Jay Yao writes whether he thinks Rolls-Royce share price can surge if the pandemic-driven trend of remote work decreases.

| 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) recently noted that the remote work trend has cut air travel. According to the company’s 2020 full year presentation, “some travel [was] displaced by advances in virtual platforms for business connectivity”. With the number of new Covid-19 cases dropping in many places, however, there is a possibility that many areas of the world will control the pandemic this year and fewer businesses might use remote work in the near and medium term. Here’s how I think the changing conditions concerning remote work could affect the Rolls-Royce share price as a result.

Remote work has been a headwind

Remote work or working online has been a headwind for Rolls-Royce since the beginning of 2020.

Due to the desire to socially distance, remote work took off during the pandemic. As a result, virtual platforms that allow for business connectivity (such as Zoom) surged in terms of activity. With more people doing work remotely, fewer people have had to travel through air. Many conventions that were normally in person were switched to virtual, for example.

Rolls-Royce has been affected by this trend because it depends on civil aviation for a big part of its business. Specifically, the company makes a lot of its money from long-term contracts that are dependent on those engine flying hours. If fewer people fly due to remote work, total engine flying hours could decrease.

Can the Rolls-Royce share price surge if remote work decreases?

With the vaccine rolling out in many places, the pandemic could be controlled in many places this year. As a result, there is the potential for less remote work and more air travel. If that happens, Rolls-Royce could benefit fundamentally.

While the company could benefit from less remote work, I don’t know if the Rolls-Royce share price will surge because of it. The market looks ahead, and has likely already priced in much of the future effects of remote work usage decreasing.

It’s also important to note that many believe remote work is here to stay in some fashion. Many employers have noticed that they can get the same amount of work done for many jobs with remote work being included. Many employees also like working from home. Although their employees might still have to come to the office, many won’t have to come to the office every day given that they can work some days remotely.

My final Foolish thoughts

I’d buy and hold the stock at the current share price. I reckon there are many fast-growing economies that have relatively low penetration of flights per person that could drive demand for new airplanes for decades to come. Given Rolls-Royce’s moat in aerospace engines and status as one of the leaders in an industry dominated by few firms, I believe the company will benefit from that trend.

Rolls-Royce does have risk in the near term given new Covid-19 variants that have created uncertainty. If the variants become more resistant to vaccines than expected, the pandemic could last for longer and the company’s civil aerospace business might continue to not do well. This might not be good for the Rolls-Royce share price.

All in all, however, I think the stock has a lot of potential in the long term given the growth in civil aviation.

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.

Jay Yao 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 »