Rolls Royce (RR) share price has turned red today as earlier momentum fades. The stock is trading at 112.5p, which is a few points below the intraday high of 117p. Still, the stock is up by more than 220% from its October low of 35p.
There are two primary reasons why Rolls Royce shares have done extremely well recently. First, scientists have made strong progress on delivering a Covid-19 vaccine. Indeed, earlier today, the UK government became the first major country to authorise the vaccine manufactured by Pfizer and BioNTech.
With the vaccine’s 95% success rate, it means that the number of Covid cases in the country will start falling. That’s a good thing for Rolls Royce, which manufactures aircraft engines. Therefore, while analysts expect the aviation industry to take a few years to go back to pre-pandemic levels, there is light at the end of the tunnel now.
Second, Rolls Royce share price has soared because of the strong balance sheet. Recently, the company mobilised its resources and raised billions of dollars. It issued a successful share offering that led to the share split. It also announced plans to raise funds through debt. Therefore, by raising funds and slashing costs, analysts believe that RR will emerge as a leaner and better company.
RR has also benefited from the optimism about Brexit. With a deal in sight, it means that the company will be able to serve European companies with no added costs.
So, is Rolls Royce a good buy now?
In my previous article on Rolls Royce, I predicted that the stock would soar to 190p. Clearly, that has not happened considering that the stock is 40% below the target. But I still believe that the price will continue rising.
On the daily chart, we see that the strong rally has started to wane. The shares have already moved above the 50-day EMA and are now crossing the 200-day EMA. This means that a golden cross could happen in the next few days. Also, the upward trend is being supported by the yellow trendline that connects the lowest levels in October and November.
Therefore, while the price will possibly be volatile in the near term, I still expect it to keep rising in the next few months.
