Rolls-Royce Holdings Share Price Forecast August 2021 – Time to Buy RR?

Shares of British multinational aerospace and defence company Rolls-Royce Holdings (LSE: RR) are trading around 119p today. The shares hit a 5-month high of 120p when they started trading on Wednesday. However, the shares continue to be undervalued despite being one of the best performers on the FTSE 100 in the last 30 days.

Rolls-Royce Holdings – Technical Analysis

According to the financial statement released by Rolls-Royce Holdings indicate that the market cap is at £9.517 billion with total assets worth £28.755 billion. Revenue for 2020 was at £11.82 billion compared to £16.59 billion in 2019.

Moving averages such as Exponential Moving Average (100)(105.36), Simple Moving Average (100)(105.18), Exponential Moving Average (200)(107.25) and Simple Moving Average (200)(106.5) are indicating a buying action. Oscillators such as Relative Strength Index (14)(69.40),  Stochastic %K (14, 3, 3)(97.25),  Commodity Channel Index (20)(184.68) and Average Directional Index (14)(25.7) are neutral.

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Recent Developments

As the sentiments around the global pandemic begin to improve, it has increased the shares by nearly 10%. However, the shares continue to trade at least 50% below their pre-pandemic moving average price of around 250p per share, despite it being one the best performing shares on the FTSE 100. According to DCF valuation figures, the shares have been trading 70% lower than their competitors,  which make them severely undervalued.

While the company’s ability to earn income hasn’t been permanently damaged by the pandemic, it has taken quite a hit. For instance, the company has laid off thousands of staff which have coincided with various airlines putting orders for new aircraft on ice. The company may not be able to meet demand if new orders start to grow once the pandemic situation improves.  After the recent layoffs, the company has shrunk in size compared to what it was at the beginning of the pandemic.  It might take several years for it to return to growth. Because of all the reasons stated above,  RR’s share price is showing characteristics of a value trap.

Rolls-Royce Holdings have to maintain the current share price in order for its bullish tone to be taken seriously. The shares have found resistance at 113p previously which wasn’t surpassed close to three weeks. However, the outlook on the shares is a positive one, aided by the overall aviation sector’s recovery.

Should You Buy RR Shares?

Before buying RR shares, investors must consider two major factors that have changed the aviation business forever. The first is the covid-19 pandemic which has undoubtedly changed people’s perception towards air travel. The other factor is the fossil fuel energy crisis. While the development of renewable energy sources for domestic and industrial needs are well underway, there is yet to be a viable substitute for hydrocarbon-based aviation propulsion. When the alternative does arrive, such as electric aero engines, there is no doubt that the company will be at the forefront of its development.

There is very little chance for newcomers or existing engine makers to take over this sector owing to the position Rolls-Royce Holdings is already in. However, till the time such technological change takes place, there is no way to measure how badly hydrocarbon-based aviation will suffer. For the time being, Rolls-Royce’s fortunes depend upon the increase of air travellers which would help it to get back to sustainable profits before liquidity becomes strained.  While share prices can climb up again, there isn’t a new valuation basis worked out for the shares for the long term.  This is why investors should wait and not buy RR shares at the moment.

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