If I look at a list of the most volatile stocks of 2020, Rolls-Royce (LSE:RR) would definitely be on it. From trading at highs just below 700p in February, it traded well below 100p in October. Yet so far in 2021, it has been a completely different story for the Rolls-Royce share price. It has been anchored around the 100p level for several months now. With a lack of any meaningful move higher, will the shares ever break back towards 200p?
Last year versus now
It’s important to differentiate between this year and last year when analysing the Rolls-Royce share price. The crash and volatility seen in 2020 was because of investors processing a lot of news about the company.
It quickly became apparent that with global lockdowns, commercial aviation was going to take a hit. People simply would be unable to travel abroad, meaning passenger flying miles would decrease. This meant less maintenance and new engines were required from Rolls-Royce.
Even though other areas of the business (such as defence) didn’t suffer as badly, the size of the aviation arm of the company meant that the Rolls-Royce share price fell considerably by the end of Q1. The volatility for the rest of the year mirrored the state of the pandemic.
Past performance doesn’t perfectly predict future returns, but it does give me some clues. Given that the volatility last year was due to concern by investors, the calm of the past few months tells me that investors are now more neutral.
A catalyst for the Rolls-Royce share price?
Neutral isn’t really what I’d want though if I held shares in Rolls-Royce right now. I’d be wanting to see it moving higher and trying to head back to 200p or above. The low price today could be a buying opportunity for me, of course. But right now, I don’t have enough information on where the price might go next to warrant me buying the shares, despite that low price.
From one angle, the next move could be higher given the fact that the Rolls-Royce share price has consolidated at current levels for a sustained period. This is a change from the falling price seen for much of 2020. The fact that the price has stopped falling, and is steady, does offer some positivity.
From my point of view, to break higher I’d need to see a catalyst. For example, if summer overseas travel restrictions were lifted in the UK, I’d expect the share price to jump. Ultimately, any sign that airline operators will be increasing flights should be positive for Rolls-Royce.
Aside from external news like the above, the internal health of the company could drive the Rolls-Royce share price higher. The half-year 2021 results are due out in the first week of August.
If cost-cutting measures are on track to save the £1.3bn+ in annual cost savings targeted by the end of 2022, this would be a lift for the shares. More clarity on the restructure (lower capital spend in commercial aviation and more into power systems and defence) could also help.
I think the current range around 100p could continue until we get more news out about summer travel plans and half-year results. If both sets of news are positive, then I think momentum could carry the shares to 200p by year end.
jonathansmith1 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.