Are Rolls-Royce shares headed back below 50p?

An airplane on a runway

There’s a handful of FTSE 100 companies trading at penny share prices right now, including Rolls-Royce Holdings (LSE: RR). That means we can buy them for less than a pound today. But for how long? I’ve been wondering when Rolls-Royce shares might finally head back up above 100p for a while.

Little more than a month ago, Rolls-Royce shares were getting close to 95p, just a few pennies short of the magic line.

Down again

But since then, they’ve been falling again. The price has even dipped below 80p, dashing recovery hopes once again. I’m now just wondering whether we should fear a fall below 50p rather than hope for a rise above £1.

The outlook for the UK’s already murky economy has now taken an even gloomier turn. Statistics confirmed that inflation has climbed above 10% year-on-year. And it shows no sign of stopping yet. Some commentators are even predicting it could soar as high as 18% in early 2023. Gulp.

Damage

What damage might that do to Rolls-Royce? Well, Rolls depends on aviation hours for the bulk of its income. It doesn’t really make its money from selling its aero engines, but from long-term servicing, repairs and spares.

But if the engines aren’t doing the hours, Rolls doesn’t get to do its maintenance on them, and that puts a crimp in the cash flow. Airlines are getting back on track though, aren’t they?

Well, perhaps. But if inflation continues its upwards trajectory and gets close to that fearsome 18% by next year, a lot of people won’t be spending their diminishing spare cash on jetting away to the sun.

The airlines are hit by soaring fuel costs too, and rising ticket prices are not going to get more bums on seats either.

Airlines

Airline shares are hurting. International Consolidates Airlines stock has lost a third of its value in the past 12 months. Thoughts of a quick recovery from the pandemic have been cast aside, and the share price is now barely above its lowest during the Covid crash.

Even 50p would be a fair bit above Rolls’ lowest crash price. But is it likely to fall that low? My biggest thought is… I hope so.

Why? Well, I invest with a long-term horizon, and I intend to be a net buyer of shares over the next 10 years and more.

Long-term

I’m a long-term buyer of food, energy, and all sorts of things. And I’d dearly love to see the prices of all of those fall as far as possible. If I want to keep buying shares, it would make no sense at all for me to want share prices to go up instead.

I seriously doubt Rolls-Royce shares will dip anywhere near 50p (and I know, I’m setting myself up for a fall there). The outlook for the defence industry has been getting a big boost by the events of this year, and that has to help.

But if they did, I’d most likely buy as many as I could afford.

The post Are Rolls-Royce shares headed back below 50p? appeared first on The Motley Fool UK.

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Alan Oscroft 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.