Rolls-Royce Holdings shares have entered a sharp decline this month, falling to their lowest level since mid-June. The stock has retreated 16% from its year-to-date peak, pressured by a combination of technical breakdowns and fundamental headwinds. Investors are now questioning whether a rebound is likely or if further losses are in store.
Technical picture points to further weakness
The daily chart shows a clear downtrend, with the stock making a series of lower highs and lower lows. After peaking at 1,584p in August, the share price has slid to around 1,331p. It has broken below the 38.2% Fibonacci retracement level and the critical support at 1,405p, which was the September 14 low. This breach confirms a bearish breakout.
Adding to the bearish signals, the stock has dropped below its 200-day exponential moving average, and the MACD indicator has formed a bearish crossover. These technical indicators suggest that the path of least resistance is lower, with the next potential support level at 1,200p. A move above the resistance at 1,360p would invalidate the bearish outlook.
Fundamental headwinds mount
The sell-off comes as the civil aviation sector faces rising jet fuel prices. The average jet fuel price has climbed to $192.4 per barrel, up 4.3% from a month earlier. This increase is prompting some airlines to reconsider their routes, which could impact Rolls-Royce's engine maintenance and aftermarket business.
Additionally, Rolls-Royce's operations in Saudi Arabia are under pressure, as the country has been forced to shut down some airports. The company counts several Saudi airlines among its clients, adding to the uncertainty.
SMR business struggles
The company's small modular reactor (SMR) division is also facing challenges. It has only secured orders from the UK, Swedish, and Czech Republic governments, and the company aims to achieve profitability and positive free cash flow by 2030. Competition from companies like Oklo and NuScale adds further pressure.
Valuation concerns
Rolls-Royce's valuation has become a point of concern. The trailing twelve-month price-to-earnings ratio stands at 31.8, significantly higher than the manufacturing sector average of 19. This multiple also exceeds that of peers such as Safran and GE Aerospace, which have also seen their shares decline recently.
The broader market has seen a wave of profit-taking in aerospace stocks. GE Aerospace has fallen over 20% from its all-time high, while Safran and RTX have dropped by double digits from their peaks. Rolls-Royce's decline is part of this sector-wide correction.
Long-term growth prospects remain
Despite the near-term challenges, Rolls-Royce's business is expected to grow in the coming years. Consensus estimates project revenue of £23.7 billion for the current year, with profit before tax of £4.086 billion. Looking ahead, revenue and profits are forecast to reach £28 billion and £6.16 billion, respectively. The company has a history of beating estimates, which could provide some support.
However, the immediate technical and fundamental picture suggests that the stock may continue to face downward pressure. Investors will be watching whether the shares can stabilize at the 1,200p level or if a broader market recovery can lift the sector.
This article is for informational purposes only and does not constitute financial advice.
