Aero-engine manufacturer and FTSE 100 stock Rolls-Royce (LSE: RR) has come a long way in the past few months. After the stock market crash of March 2020, the stock’s price plunged to below 100p. It stayed at penny stock levels for much of the year.
Fastest electric aircraft developed
This year, though, it has recovered significantly. The Rolls-Royce share price has risen some 35% in the past year. And much of this increase has been seen in the last six months. And more good news has just rolled in. Its electric aircraft, called ‘Spirit of Innovation’ has just become the fastest such in the world.
This could be great news given the fact that the world is increasingly moving towards cleaner energy sources. While it is widely accepted that electric vehicles (EVs) will become the norm rather than the exception over the next decade, the idea has so far been far-fetched for air travel. Some experiments have been done, but have so far succeeded only for short distances. Yet, it is a promising development for Rolls-Royce, I reckon.
Disposals gather steam
In other news, the company’s recovery continues. It just reported the completion of sale of its civil nuclear instrumentation and control business to France’s Framatome. This will support its target of £2bn disposals, which are part of its restructuring exercise.
A couple of months ago, it had agreed to sell its Spanish subsidiary ITP Aero to a consortium of companies, led by Bain Capital Private Equity. This contributed the biggest amount to its disposals programme. These developments are also positive for the company, which has run-up huge debts and also reported losses in the last financial year.
Lockdowns could impact the FTSE 100 index
But for the Rolls-Royce stock to continue with its forward momentum, it is essential that the broader environment stays supportive. And considering that there is bad news on coronavirus cases, I am at least temporarily cautious for travel stocks. Austria just imposed a fresh national lockdown on rising cases and according to news reports, Germany could follow too.
The UK is better placed because even with a rise in cases, both the hospitalisations and deaths due to Covid-19 are declining. But then, Rolls-Royce is affected by global travel trends. And fresh lockdowns in parts of continental Europe might have a huge sentimental impact on the FTSE 100 index and travel stocks in particular.
What I’d do about the Rolls-Royce share price
In August, I had forecast that the Rolls-Royce share price could rise to around 140p levels. This is exactly what happened. But I am doubtful if it can continue to rise now, if Covid-19 risks threaten to derail the prospects for travel again. And news on its speedy electric aircraft, encouraging as it is, is not enough to lend impetus to the stock price right now. As an investor, I would wait and watch and see how things develop before taking a call on whether to buy its stock or not.
Manika Premsingh 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.
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