Rolls-Royce (LON: RR) share price had a difficult performance in August as concerns about the aviation sector and the global economy continued. The shares collapsed by more than 15% during the month as the FTSE 100 also pulled back.
Rolls-Royce Holdings pressured
Rolls-Royce Holdings is a leading industrial and engineering company that manufactures diverse products. The company focuses on civil aviation, power, and defence systems.
More than 50% of its revenue comes from civil aviation business, where it sells and services aircraft engines. Most of its revenue and profits come from the long-term contracts that the company makes with airlines like Etihad and Emirates.
Rolls-Royce share price collapsed to the lowest level since November 2020 as the crisis in the aviation industry continued. Most airlines have announced a series of flight cuts even as demand remains at historic highs.
Most recently, British Airways, which is owned by IAG, said that it will slash 10,000 flights during the winter season. Other airlines like Delta and United are expected to slash their holdings.
Flight cancellations are a source of major concern for Rolls-Royce since it makes most of its money from servicing engines. This servicing happens after a plane makes several flights. Flying hours are still over 405 below where they were when the pandemic started.
The most recent earnings showed that Rolls-Royce made an underlying profit of 125 million pounds in the first half of the year. That was a significant decline from the 307 million pounds it made a year earlier. It was also lower than wat analysts were expecting.
Therefore, the RR stock price has struggled because of the company’s slow recovery. Also, its defence business has seen lower order intake despite the ongoing crisis in Ukraine. Most importantly, the cost of doing business remains at elevated levels.
Rolls-Royce share price forecast
The daily chart shows that the RR stock price has been in the past few months. This week, the shares managed to move below the important support level at 77.72p. This was an important level since it was the lower side of the descending triangle pattern.
The stock moved below the 25-day and 50-day moving averages while the MACD moved below the neutral level. Therefore, there is a likelihood that the shares will continue falling as sellers target the next key support level at 50p. A move above the resistance level at 77.7p will invalidate the bearish view.
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