The Rolls-Royce (LSE: RR) share price has fallen by 18% in the last month. It is no surprise really. The Omicron variant has created fresh uncertainty, which has particularly affected travel-related stocks. With a price of 115p, the FTSE 100 stock is now closer to 100p than it is to the highs of even one month ago, when it was around 140p. So the next obvious question to my mind is if it will fall below 100p now.
Why 100p is significant
To me as an investor, the 100p number has a psychological significance. Any price below this would make Rolls-Royce a penny stock again, as it was for some time during the pandemic. And that means that it would be cheaper than most other FTSE 100 stocks.
Some analysts do expect the stock to fall just a tad lower than 100p, to 99p in the next 12 months, as per data compiled by the Financial Times. These are only the most pessimistic forecasts, though. On average, analysts think that there is a 15% upside to the stock, which would bring the price back up close to November’s levels.
Forecasts are always subject to uncertainty. But I think right now, of all times, that is more the case than it usually is going by the Covid-19 situation. Which is why, I think there is a bigger case for figuring out how much downside there is to the stock right now than there normally is. From the looks of it, it does appear that the pandemic situation will get worse before it gets better. And considering that the stock needs to fall only some 13% to reach penny stock levels, I reckon it is quite likely that it will. It might even happen before 2021 ends, going by the fact that it has fallen 18% in the last month alone.
Would I buy the Rolls-Royce stock at a lower price?
However, the bigger question for me is whether I would buy it if it does fall to these levels.
There is no denying that the aero-engine manufacturer has really got its act together this year and made some serious progress, even though there was a very good excuse for fumbling, if it did. And its latest trading update shows continued strengthening of the company. It has achieved net cash inflow in the third quarter of its current financial year. Earlier, it also achieved its disposals target of £2bn, moving it forward along the path of restructuring. It even managed to clock a net profit for the first half of the year.
This gives me confidence in its ability to manage itself well in the future too. But, right now, the challenges it faces are really outside of its control. The coronavirus situation has brought a number of otherwise profitable and well-run companies to their knees. And the danger of that happening to Rolls-Royce exists too, in my view. For that reason, I would still wait and watch what happens next for the stock. Once there is more clarity on Covid-19, I would make a call then. Until then, I am more inclined to buy relatively predictable stocks.
