Having already lost 15% over the last month before this morning, the Rolls-Royce (LSE: RR) share price hasn’t been this low since February. It’s also down almost 2% year-on-year. Will this negative momentum continue for the rest of this month into August? Today’s lurch lower, down over 4%, as I type, certainly doesn’t bode well.
Rolls-Royce share price: victim of Covid
Based on Monday’s movements, one certainly can’t rule out the possibility that the Rolls-Royce share price could be in for another volatile period. However, it’s important to put the latest dip into context. And that context, as you may have guessed, is the UK’s ongoing battle with Covid-19.
Never mind that today represented ‘Freedom Day’ in England. It would seem the market remains concerned about the implications of lifting restrictions to the economic recovery. As infection levels from the Delta variant continue to rise, the growing worry is that staff from all sorts of businesses will be forced to isolate.
On top of this, the flip-flopping of rules with regard to international travel is playing hell with the share prices in the travel and leisure industry. Airlines such as British Airways-owner IAG were down heavily in early trading. By association, it was to be expected that Rolls Royce — which manufacturers jet engines used in planes — would also be weaker.
This link to another sector highlights a major risk for anyone considering buying shares in the battered FTSE 100 company. Regardless of what RR does, its success is still heavily dependent on demand in other sectors.
While we can’t say for sure whether today’s tumble marks a fresh period of sustained downward pressure on the Rolls-Royce share price, there’s one potentially big event on the horizon. Half-year numbers from the stock are due on 5 August.
We should get lots of positive talk about the company’s ongoing restructuring programme and the amount of money it’ll save. Clearly, any advance on the £1.3bn of cost savings predicted will likely go down well. The balance sheet is currently creaking under a whole lot of debt, after all.
Confirmation that the firm has succeeded in addressing the issues with its Trent 1000 engines could also generate a rebound in the Rolls-Royce share price. Once again however, this may count for little if Covid infection levels (and hospital admissions) are still rising.
Only for the brave
A while ago, I speculated that the worst may be over for RR. Unfortunately, the performance over the last few weeks has made a mockery of that suggestion. Of course, no one knows for sure where the share price of any company is heading over the next few days or weeks.
There are simply too many factors to consider. This is why I always take a long-term approach. If I buy, it should be with the intention of holding for years.
A full recovery at Rolls-Royce is certainly possible, in time. Nevertheless, the hurdles the company faces — both internal and external — lead me to think there are far less stressful ways of trying to make money in the market.
As such, I’m won’t be buying the stock right now. At 23 times earnings before this morning’s capitulation, the Rolls-Royce share price still isn’t cheap enough for me.
If RR stock is only for the brave right now, judge me as cowardly.
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Paul Summers 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.