With a new chief executive ready to take over and airlines reporting strong passenger growth, times would seem to be promising for Rolls-Royce (LSE: RR). But the share price has lost 12% in the past year.
At 90p, it feels tantalisingly close to me as a shareholder to hitting a pound. But will it? Or will it keep heading down?
How the Rolls-Royce share price has moved
Hitting 50p may sound far less likely. After all, the share price only needs to add another 10p to reach the pound mark. They would have to lose four times that amount to get to 50p.
Then again, although the past year has seen a 12% decline overall, at some points within that period the movement has been more dramatic. The Rolls-Royce share price is 43% lower today than its 12-month high. If it falls that much from its current level, it would be just a penny or two above 50p. We have seen the Rolls-Royce share price below 50p in the past couple of years, when its business was badly hit by the pandemic in 2020.
So where will it go from here? A share price is meaningless on its own. It reflects the market’s valuation of a company. That is not always accurate. I do not think the value of Rolls-Royce has moved around in the 12 months the way its share price suggests, for example. But, in the long term, if Rolls-Royce can prove its business is worth more than investors currently expect, the share price will, hopefully, move up to reflect that.
Business momentum
I am upbeat about the outlook for the company. It has spent several years tightening its cost base and I think a new chief executive could help that effort.
Civil aviation demand is strong in most regions. That should be a boost for engine servicing revenues at Rolls-Royce. But it could also mean airlines start spending more heavily again on new aircraft. Rolls-Royce is one of only a few companies that can make aircraft engines and some planes are designed for a specific engine. So I think the firm’s revenues could grow in coming years.
Meanwhile, it could benefit from its cost-cutting in the form of better profit margins. Too much cost-cutting can actually end up hurting a company’s efficiency though, and I see that as a risk. I also think that uneven demand recovery by region for civil aviation is a threat to revenue growth.
My move
I think the current Rolls-Royce share price and business outlook make it more likely that it will hit £1 first. I already own the shares in my portfolio. At the moment, while they continue to sell for pennies, I would consider adding more.
