Business & Investment

Rolls-Royce stock prices are declining due to fear of viruses. Should I buy stock?

Outlook Rolls Royce (LSE: RR) Stock prices have changed dramatically over the past week. The emergence of new coronavirus variants, coupled with a travel ban imposed by the government in an attempt to control its spread, has suddenly stopped the recovery of the aviation sector.

Before the travel ban, Rolls’ outlook seemed to improve. The airline ordered a new plane and the consumer was back in the sky. The latest travel ban is a big setback for the group. It is unknown if and when this latest headwind will disappear.

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That’s why I was wondering if I should change my bullish opinion on stocks. Before this week’s event I was a buyer of Rolls-Royce stock.. Now that my outlook has changed, I am reviewing my position.

Rolls-Royce Stock Outlook

The impact of the recent travel ban on the aviation industry is clear.Career share like IAG Immediately after the restrictions were announced, the double-digit rate plummeted. Traffic on some long-haul routes that had been restored has virtually stopped.

Indeed, many global destinations are unaffected. Domestic markets such as the United States are also not affected by the ban. However, the aviation industry operates at a marginal margin, and if you are not operating at 100% capacity, you will incur immediate losses.

I think the recent pandemic restrictions will slow Rolls’ recovery. For now, it’s hard to say how much they affect the group. It depends on how long the limit lasts.

If they continue until the second quarter of next year, Rolls will 2022 earnings forecast.. If the limit is rolled back within the next month or two months, the impact on the group may be more manageable.

Major summer season

In reality, it doesn’t matter what happens in the next few weeks. The future of Rolls-Royce stock will depend on what happens next summer.

If the aviation industry can enjoy the relatively normal summer 2022 season, profits could recover across the sector. This can improve reliability and increase aircraft orders. Increasing consumer confidence can also lead to increased bookings, increased airline revenue, and justification for aircraft orders.

Overall, the latest travel bans are frustrating for the aviation industry, but it’s not the end of the world. It will always take years for the industry to recover from a pandemic. There is no big difference here or there for months (assuming the limit lasts only a few months).

Therefore, I think Rolls-Royce’s stock price is still attractive as a contrarian value investment. The aviation industry continues to recover from the pandemic downturn, so I buy stock in my portfolio.

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Rupert Hargreaves does not have a position in any of the shares mentioned. The Motley Fool UK does not have a position in any of the shares mentioned. The views expressed about the companies mentioned in this article are those of the author and may differ from the official recommendations made by subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, given the various insights, A better investor than us.

Rolls-Royce stock prices are declining due to fear of viruses. Should I buy stock? Rolls-Royce stock prices are declining due to fear of viruses. Should I buy stock?

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