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Rolls-Royce (LSE: RR) shares are down 10% in the past month. That’s a modest dip, relative to their recent stellar run. But is it a rare opportunity to buy them at a reduced price?
The crisis of war in Iran has raised electricity prices, disrupted flights and shaken the global economy. After a good run where stocks only went one way, the FTSE 100’s star performer suddenly has so much power that it pulls in different directions.
Buying an opportunity or a threat?
Let’s start with the positives of the team, if not the world. Rolls-Royce has an important defense sector, and this serious instability in the country should increase military spending. With European countries already under pressure to reopen, that side of the business could see an increase in demand.
Rolls also has long-term growth potential in building small reactors, better known as small nuclear plants. If the conflict causes a prolonged oil and gas shock, governments may be tempted to order dozens of mini-nukes to protect reliable domestic energy sources. Decentralization of the group’s energy systems can also benefit, especially if energy efficiency becomes a priority for the industry.
But there are just too many dangers. The biggest is flying. Rolls-Royce makes its money not just by selling engines, but by long-term service contracts based on flying hours. If the planes don’t fly, they don’t get paid.
That’s a real concern right now. British Airways has suspended flights to Dubai until at least 31 May. If the disruption drags on or spreads, global airline operations may be affected. That would have a direct impact on Rolls-Royce’s all-important cash flow. There is also a broader economic risk. If rising oil prices cause a global downturn, demand for air travel may weaken further. That would be a double whammy.
Then there is the indirect threat. Rolls-Royce has been positioning itself to benefit from the rapid growth of data centers, providing power systems to support the growth of artificial intelligence. But if that’s an AI-driven investment cycle, demand may fall short of expectations. AI funding can be difficult if interest rates rise and investor sentiment falls. So that’s what other conservative investors need to consider.
The balance has fallen
Shares in Rolls-Royce have been incredibly strong, but they don’t look expensive for a long time. The price-to-earnings ratio reached 65 after the blockbuster results of 2025. After recent problems, it has been lowered to 40. Cheap, but far from cheap. So where does that leave investors?
Rolls-Royce includes many moving parts. Defense and power can raise the stock. Airlines and the wider economy can drag it down. The outcome depends largely on events in the Middle East.
The company has transformed itself under CEO Tufan Erginbilgic. I think the shares are worth considering from a long-term perspective, and I will not sell my stake. But I won’t rush to buy more at today’s rate. Investors may consider draining funds, or better yet, wait to see if market volatility presents a better entry point.
Most FTSE 100 stocks had a stronger impact than Rolls-Royce. I see many other opportunities out there, and almost all of them are cheap and…
