The Rolls-Royce share price has pulled back in the past few days, moving from the year-to-date high of 1,195p to the current 1,115p, as investors book profits as they wait for the upcoming trading update in November. So, will the stock crash to 1,000p or rebound to 1,200p?
Rolls-Royce share price technical analysis
The daily timeframe chart shows that the RR share price has retreated in the past few days, moving from a record high of 1,200p to a low of 1,115p.
This pullback happened as it neared the important resistance level at 1,200p. It is common for a stock to retreat before hitting key resistance levels.
The retreat happened after it formed a rising wedge pattern, which is characterized by two rising and converging trendlines that reached their convergence in September. This pattern is one of the most common bearish reversal signs in technical analysis.
Rolls-Royce share price has also formed a bearish divergence pattern. The Percentage Price Oscillator has moved from 7.7 in March and is about to cross the zero line. Its histogram have remained below the zero line since October 2.
The Relative Strength Index (RSI) has also formed a bearish divergence pattern as it has continued falling even as the stock rose to a record high.
Therefore, the most likely scenario is where the Rolls-Royce stock price continues falling in the near term as investors wait for its earnings. Such a move will likely see it plunge to the psychological level at 1,000p.
On the flip side, a move above the year-to-date high of 1,196p will point to more gains to 1,200p and above.
Rolls-Royce business is doing well
The Rolls-Royce stock price has been in a strong uptrend in the past few years as it faced numerous tailwinds across its businesses.
It benefited as the civil aviation industry rebounded after the COVID pandemic. Most airlines have already gone back to their pre-pandemic levels, and orders for new aircraft has jumped in the past few months.
The company’s defense business has continued doing well in the past few years as European companies have boosted their spending.
Most importantly, the Small Modular Nuclear business has become a crown jewel in its operations. It has already inked a deal with the UK government, and chances are that it will enter similar deals with companies, especially in the data center industry. Similar companies in the sector, like Oklo, NuScale, and TerraPower, have received multi-billion-dollar valuations.
Analysts anticipate that the company’s business will continue growing over time. The average estimate is that its revenue this year will be £19.5 billion, while the free cash flow will hit £3.17 billion.
These numbers are expected to keep growing, with the revenue set to hit £21.5 billion in 2026, £23.3 billion in 2027, and £25.35 billion in 2028.
The free cash flow is also expected to be about £3.5 billion, £4.17 billion, and £4.6 billion in the next three years. Barring any major event, chances are that the company will beat estimates as it has done in the past.
At the same time, while Rolls-Royce is not cheap, its valuation is not all that extended. With a market cap of over £92 billion and an estimated FCF of £3.1 billion this year, the company has a price to FCF multiple of 29.
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