Could the Rolls-Royce share price plunge to 0p?

As someone who recently turned bullish on the outlook for the Rolls-Royce (LSE: RR) share price, it might seem strange for me to be considering if the stock could fall to 0p. 

However, it is essential to consider both the bull and bear arguments for any investment before making a buy or sell decision.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Rolls-Royce share price plunge

Unfortunately, no company is immune from bankruptcy or insolvency. Even state-backed businesses such as Rolls-Royce could succumb to market pressures.

Indeed, this time last year, there was speculation that if the group struggled in its efforts to raise money from the market, management might have to consider an aggressive restructuring. Ultimately, this could have resulted in a total loss for investors. 

That was more than a year ago. Today, the corporation is in a much stronger position. By selling off non-core business divisions, the group has raised additional cash. It has also been able to raise money from investors and bondholders.

Efforts to cut costs are also yielding results, and the aviation market is rebounding. On top of these factors, the UK government is now backing the company’s mini nuclear reactor initiative, which could be a hidden gem in the Rolls-Royce business portfolio

Despite the improving operating environment, the company still faces some significant hurdles. The aviation industry is not expected to recover to 2019 levels of activity until the mid-2020s. That is the most optimistic projection. As the pandemic continues to rumble on, the chances of a full recovery in the near term are looking more and more distant. 

At the same time, the group will face challenges from rising costs. Increasing wage and materials inflation will hamper growth efforts. If Rolls cannot pass these additional charges on to customers, it may have to swallow the additional costs itself. For a company that is already struggling to break even, this could be a challenge. 

Then there are factors such as competition to consider. Rolls is regarded the world over for its experience in the aviation sector, but customers might not want to place orders with a business struggling financially. This could help competitors steal a march. 

Reduced risks

Nevertheless, even after taking these headwinds into account, I think Rolls’ chances of collapse have reduced significantly. Last year, some analysts put the stakes as high as 50/50.

Today, I would say the risk of the Rolls-Royce share price falling to zero is around 20%. The group is back on a stable footing. Still, I think the company will continue to struggle until the pandemic is securely fixed in the rearview mirror. And if the pandemic gets worse and the world goes back into shutdown mode, Rolls may struggle to keep the lights on. 

Despite these risks, I still think I would buy the stock as a speculative recovery play for my portfolio, although it may not be suitable for all investors. 

Our 5 Top Shares for the New “Green Industrial Revolution”

It was released in November 2020, and make no mistake:

It’s happening.

The UK Government’s 10-point plan for a new “Green Industrial Revolution.”

PriceWaterhouse Coopers believes this trend will cost £400billion…

…That’s just here in Britain over the next 10 years.

Worldwide, the Green Industrial Revolution could be worth TRILLIONS.

It’s why I’m urging all investors to read this special presentation carefully, and learn how you can uncover the 5 companies that we believe are poised to profit from this gargantuan trend ahead!

Access this special “Green Industrial Revolution” presentation now

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Comments are closed.