Is Rolls Royce Share Price Too Cheap To Ignore Or Is it a Value Trap?


Rolls Royce share (RR) price is in the red today as investors continue to worry about the iconic British engineering company. The firm’s shares are trading at 256p, which is below last week’s high of 282p. By dropping by 0.50%, the shares have underperformed the FTSE 100, which has just turned green.

Rolls Royce problems have continued

Rolls Royce share price has struggled in the past decade. In the past ten years, the shares have dropped by more than 60% and the British company’s profitability has waned. This year, the stock has dropped by more than 63%.

But Rolls Royce is not the only engineering company in trouble. Indeed, General Electric, its closest rival has been in more trouble. GE’s shares have dropped by more than 70% in the past five years and by more than 30% in the past one year.

Rolls Royce problems are well known. The company’s Trent 1,000 engines started developing cracks in 2018, leading the company to allocate hundreds of millions of pounds in repairing them. As a result, it announced its first major loss in that year. The problems continued when Airbus ended the A380 program because of lack of demand. Then the coronavirus pandemic hit and the airline industry became the most affected.

Subsequently, the company’s halted its dividend, removed its guidance and announced massive layoffs. All this led to a series of ratings downgrade by agencies like Fitch and Moody’s. And just last week, the company got into more trouble after the company discovered new cracks in its A350 engine blades.

So, is Rolls Royce share price cheap?

Still, even with the challenges, most analysts believe that the shares are heading higher. Analysts at Goldman Sachs expect the stock to rise to 509p while those at Jefferies expect it to climb to 500p. Similarly, those at Citigroup and Panmure Gordon expect it to climb to 564p and 400p, respectively.

The weekly chart shows that Rolls Royce share price has been in a sharp downward trend since July 2018, when it reached a high of 1,106p. The price seems to have found a significant resistance below 400p, as shown in the pink rectangle. The price remains below the short and medium-term moving averages.

Also, it is below the descending equidistance channel that is shown in green. Therefore, I suspect that the stock will remain being under pressure in the near term. If this happens, the next target will be below 200p.

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Rolls Royce technical chart

Rolls Royce share price

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