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Rolls-Royce (LSE:RR) shares climbed to a new record high at the end of last month, hitting an intraday high of 1,420p. This followed i FTSE 100 the engine maker’s full-year results for 2025, which were the best.
Two days later, the US and Israel began bombing Iran, sending the FTSE 100 down significantly. The Rolls-Royce share price is now back at 1,292p, as I write, down about 9% from the high.
I was waiting for a dip to consider buying more shares. Is this the opportunity I’ve been waiting for?
The platform is no longer burning
It’s no secret that Rolls-Royce stock has been a surprisingly good investment in recent years. In fact, nothing comes remotely close to matching its return as of March 2021.
| Five-year returns (excluding dividends) | |
| Rolls-Royce | 1,040% |
| Babcock International | 448% |
| BAE Systems | 362% |
| Airtel Africa | 324% |
| Fresnillo | 285% |
Of course, these other listed companies were not on edge during Covid, so this explains some of the efficiency. However, it cannot be denied that CEO Tufan Erginbilgiç has done an amazing job of putting out the flames in what he calls “burning stage” (ie an old Rolls-Royce).
Last year, the company’s operating margin reached 17.3%, up from 10.3% in 2023. Remember that the original goal back in 2023 was for operating income of 13%-15% by 2027. So you scrapped that goal two years early!
Meanwhile, free cash flow came to £3.27bn, up from £1.26bn in 2023. And the balance sheet is less of a concern these days, with total debt reduced from £3.6bn to £2.8bn last year.
Showing confidence in its financial future, Rolls-Royce has announced a massive multi-year share buyback plan, totaling £7bn-£9bn from 2026 to 2028.
Finally, the mid-year targets were improved (again).
Choice
I first bought Rolls-Royce shares in mid-2023 at 149p, then added again in 2024 at 475p and last year at 624p. What attracted me was that the engineering company seemed to have many avenues for growth. Often referred to as discretion, this is something I look for in an investment.
At its core, Rolls’ Civil Aerospace division should benefit from increased long-haul. Aircraft manufacturer Airbus projects a need for 9,170 new wide-body aircraft over the next 20 years, including both passenger and cargo aircraft.
Meanwhile, large increases in military budgets across Europe should strengthen the defense sector. Last year, Rolls-Royce secured lucrative aftermarket contracts worth more than £1.5bn with the Ministry of Defense and the US Department of the Army.
Then there are small modular reactors (SMRs), which will be needed by countries aiming to reach net zero targets. The company’s unique nuclear capabilities make it well positioned to become a global leader in this huge emerging market.
Another area I had overlooked was the Power Systems segment, which is growing rapidly due to the growing demand for power generation driven by AI data centers.
Buy more shares?
So I’m very happy with what I’m seeing financially and operationally here. But what about moderation?
Unfortunately, the forward price-to-earnings ratio is 36. Here, I think the stock has a perfect value. But with war raging in the Middle East, flights diverted, and supply chains around the world strained, sadly we don’t live in a perfect world.
For me at that time, I see better opportunities in the FTSE 100. But if Rolls-Royce continues to sink, I will reassess.
