Rolls-Royce share price has been in a strong sell-off this month and is now hovering at its lowest level since June 15. It has slumped by 16% from the year-to-date high as the company contends with several major challenges. Technicals suggest that the stock may continue falling in the near term.
Rolls-Royce share price technicals point to more downside
The daily chart shows that Rolls-Royce stock has been in a strong sell-off in the past few months. After peaking at 1,584p in August, the stock has dropped by 16% to the current 1,331p.
The stock has dropped below the 38.2% Fibonacci Retracement level. It has also dropped below the crucial support level of 1,405p, its lowest level on September 14. Moving below that level confirmed the bearish breakout.
Rolls-Royce has made a series of lower lows and lower highs. It has also dropped below the 200-day Exponential Moving Average (EMA), while the two lines of the MACD indicator have formed a bearish crossover.
Therefore, the stock will likely continue falling, potentially to the key support level of 1,200p. A move above the resistance level of 1,360p will invalidate the bearish outlook.
RR stock chart | Source: TradingView
Rolls-Royce Holdings is facing major headwinds
The ongoing RR stock retreat is happening as the company faces some major headwinds. One of them is that the civil aviation sector is going through a rough patch as jet fuel prices continue rising. The average jet fuel price stands at $192.4 per barrel, up by 4.3% from a month earlier. As a result, some airlines are considering adjusting their routes, a move that may affect Rolls-Royce’s clients.
Rolls-Royce is also facing the challenge of its Saudi Arabian business, where the country has been forced to shut down some of its airports. The company counts some of the country’s airlines as clients.
Additionally, the company’s small modular reactor (SMR) business is struggling. It has only received orders from the UK, Swedish, and Czech Republic governments. The company aims to start being profitable and free cash flow positive by 2030. It is facing competition from companies like Oklo and NuScale.
The company’s business has also become highly overvalued, with the trailing twelve months (TTM) price-to-earnings ratio being 31.8. This multiple is much higher than the manufacturing sector average of 19. Its multiple is also higher than that of other similar companies, including firms like Safran and GE Aerospace.
Rolls-Royce stock has slumped because of profit-taking, a move that has coincided with that of other similar companies. GE Aerospacestock has slumped by over 20% from its all-time high. Safran and RTX have dropped by double digits from their peaks.
On the positive side, Rolls-Royce Holdings’ business is expected to continue growing in the coming years. The consensus estimate is that its revenue for the year will be £23.7 billion, with its profit before tax coming in at £4.086 billion. Its revenue and profits are expected to hit £28 billion and £6.16 billion, respectively. The company’s business will likely be better than these estimates as it has done in the past.
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