Image source: Getty Images
Rolls-Royce (LSE:RR.) shares have been an incredible performer in recent years, returning 1,030% to investors over the past five years.
However, 2026 has not been the year of the jet engine manufacturer so far. In fact, the past few weeks have not been so good for the company.
As of April 17, its shares are down 9.8%. If the investor had put £5,000 into his shares on this day, he would have lost £490. Therefore, their investment would not amount to £4,510.
But I still think Rolls-Royce is a great company. So, could this drop in its share price be an opportunity to consider buying more of its shares?
Trust the guidance
Rolls-Royce released its trading update yesterday (30 April) covering the quarter to 31 March. Even during the Iran war, CEO Tufan Erginbilgic, noted that their guidance of £4-£4.2bn in underlying operating profit and £3.6bn-£3.8bn in free cash flow by 2026 remains unchanged.
This may convince some investors, given the current world events. Other reasons for optimism included:
- Main engine flight hours (EFH) grew by 5% to 115% of 2019 levels in the three months to March.
- 2026 EFH is expected to be 115%-120% of 2019 levels.
- Original equipment (OE) deliveries rose 18% in the first quarter.
- Defense OE deliveries increased 20% year over year.
- Orders for power systems had their record month in March, with an order backlog of £7.3bn.
Even after the CEO’s statements, investors should not ignore the fact that the war in Iran poses a significant risk to the company. Rising jet fuel prices are a major concern, as they can affect demand for air travel, but also supply if there is a shortage.
Some airlines insist that the chances of jet fuel shortages are decreasing. However, it should not be overlooked that if this happens, it will strike at Rolls-Royce’s largest and most profitable public transport segment.
That said, I still believe the company’s catalysts should set it up for long-term success.
Power systems and nuclear power
If you have read my previous articles about Rolls-Royce, you may have noticed that I am a fan of its investment in small reactors (SMRs).
After all, this could change the way nuclear power is run, and could change the company over time.
We are already operating contracts to build three SMRs in Wales and six in the Czech Republic.
However, I am becoming a big fan of one of its operations, its Power Systems division.
As mentioned above, its order backlog is already at £7.3bn. And I see the need for this growing continuously.
That’s because with the rise of AI, $3trn is expected to be spent on data centers by 2028. These will need to be powered somehow, Rolls-Royce hopes its power systems and nuclear reactors can help.
This can be of great benefit to the company in the long run. So I think the recent pullback in its share price gives investors an opportunity to consider buying more of its shares.
