The Omicron variant is widely believed to be less risky than some of the previous coronavirus variants. But that does not make life any better for air travel related companies. Omicron is said to be up to three times more transmissible than the Delta variant. And it has led to thousands of flight cancellations in the UK alone. This could continue in the foreseeable future, making it another potentially uncertain year for the likes of the FTSE 100 aero-engine manufacturer Rolls-Royce (LSE: RR).
The Rolls-Royce share price looks attractive
This is a pity, considering how attractive the Rolls-Royce share price looks right now. It is at around 125p as I write this Monday afternoon. This is a significant improvement from the penny stock status it crashed to in 2020 during the height of the pandemic. But it is still at almost half the levels seen before the coronavirus crisis started. Moreover, even in relative terms, it is a dirt-cheap stock. It has a price-to-earnings (P/E) ratio of a ridiculously low 3.2 times. Let me put this in perspective. The average FTSE 100 stock has a P/E of around 18 times.
Normally, I would think these two share price trends indicate potential for the stock to rise significantly. But these are not normal times, as I was saying earlier. The Rolls-Royce share price is as likely to tank fast from here if the situation takes turn for the worse, as it is to rise if we are able to put the coronavirus behind us.
Improving fundamentals
And indeed, things could in fact turn out quite well for it. The company reported profits in its last update. I think it has also done an impressive job of its restructuring. Selling its non-core assets has helped it become a more focused business and helped pay-off debt. Rating agency Moody’s downgraded the company’s investment-grade rating during the pandemic, something it probably intends to regain.
I do believe that there could be some upside to the stock in 2022 based on this. Moreover, I reckon the market mood could continue to be fairly bullish, going by the fact that the FTSE 100 index touched 7,500 recently. And it continues to remain buoyant. Just the momentum of the markets could play some role in driving up the share price too. And if Covid-19 subsides, it is a no-brainer that the stock could do quite well.
My assessment
But there is no way of knowing if that would happen. I mean, we could see another variant creep up on us anytime. And going by the high volatility in the stock’s price seen recently, it is possible that it could fall sharply. Keeping this in mind, I would wait and watch how the situation unfolds and decide to buy the stock, or not, accordingly.
