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The Rolls-Royce share price has fallen. Is now the time to buy?

Image: Rolls-Royce

Shares in Rolls-Royce (LSE: RR) have fallen more than 20% from their high last month. Over the past year, they have dropped dramatically and struggled to recover from March 2020 when the pandemic began, with the Rolls-Royce share price falling as low as 64.86p at the end of October. There has been a strong recovery since then, with the share price back to 109p at the time of writing.

Below are some of the reasons why the share price might be down.

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Reopening prospects mixed

Recently, Rolls-Royce shares have tended to do well when there has been more optimism about the world opening up and return to international travel as we used to know it. A large part of the company’s business relies on there being international travel due to its aircraft engine business.

The easing of restrictions in the UK has so far been a success and the vaccine rollout is also on track, which is allowing optimism over being able to travel abroad again this summer. However, countries such as India and Kenya have seen a dramatic rise in Covid-19 cases, which may make it harder to travel to these countries in the short term.

In my opinion, I expect that travel reopening may not be perfect in the short term but I am optimistic that this form of cash flow for Rolls-Royce should be resuming sooner rather than later.

Lack of news

Another issue behind the share price of Rolls-Royce is likely to be the fact there has been no important news from the company recently.

The lack of news is a possible factor in the share price with no catalyst to get shareholders excited about. 

Underlying investment case hasn’t changed

From a month ago there has been no real change in the prospects of Rolls-Royce, with the future climate looking the same and global travel still expected to improve and get back to normal.

I am bullish on Rolls-Royce and see the drop in the last month as a buying opportunity for investors. With the world starting to open up – and it will do further in the coming months – this is only going to benefit Rolls-Royce. Of course in the short term, things may change but the long term should see the shares in the company increase in value. I am seeing the current price as a great buying opportunity and a great discount to investors.

The risk to the share price

Many investors will remain wary of Rolls-Royce at the moment and for good reason. The reason for this is the lack of control the company has in its own success at the moment.

The success of the company going forward is heavily reliant on the pandemic and restrictions across the UK and the world easing. However, in the long term, the Rolls-Royce share price should recover its recent losses, which is why I am very bullish on the company.

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Ed Jones owns shares in Rolls-Royce. 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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