Shares in Rolls-Royce (LSE: RR) fell 4.25% at the moment (7 November). As I write, the inventory’s now 7% off its all-time excessive of 592p set a few days again.

I invested in Rolls-Royce shares at 149p about 18 months in the past, then topped up my holding in August at a price of 450p. Each positions are up. Ought to I’m going for a 3rd serving to? Or would that be pushing my luck?

What occurred

In the present day’s dip adopted a buying and selling replace protecting the ten months to 31 October. On this, the FTSE 100 engine maker stated flying hours in its key civil aerospace enterprise grew 18% yr on yr, reaching 102% of pre-pandemic ranges.

Rolls-Royce plans to ship between 500 and 550 new engines this yr, with important orders from Hong Kong’s Cathay Pacific Airways and El Al Israel Airways.

It stated enterprise remained sturdy throughout its defence division, whereas the facility methods unit loved stable income progress resulting from excessive demand for backup methods in information centres.

CEO Tufan Erginbilgiç commented: “Our transformation of Rolls-Royce into a high-performing, competitive, resilient and growing business continues with pace and intensity. Continued good performance year to date gives us further confidence in the delivery of our 2024 guidance.”

That steering is for underlying working revenue between £2.1bn and £2.3bn, and free money circulate between £2.1bn and £2.2bn. For context, the underlying working revenue was £1.6bn in 2023, on underlying income of £15.4bn. In order that’s forecast revenue progress of no less than 32%.

The dividend’s additionally again this yr, beginning at a 30% payout ratio of underlying post-tax revenue, rising to a ratio of 30%-40% annually thereafter.

Why’s the inventory down?

Given this ongoing progress, why has the inventory pulled again? I believe there are three causes.

First, the engineering large warned again in August that provide chain issues would value it £150m to £200m this yr. Administration says the availability chain setting stays “difficult“.

Additional delays or shortages in crucial elements may influence engine manufacturing schedules and enhance prices. So I’d say that is the obvious danger right here.

Second, Rolls expects engine flying hours at 100%-110% of pre-pandemic ranges in 2024. Due to this fact, the year-to-date 102% determine reported at the moment is in the direction of the decrease finish of steering. It doesn’t go away a lot wiggle room if issues go improper. Lacking annual steering is one other danger to the share price.

Lastly, the inventory has been going gangbusters this yr, and remains to be up round 85% regardless of this slight pullback. The ahead price-to-earnings ratio for subsequent yr is round 27, which isn’t that low cost.

Consequently, investor expectations are very excessive. And with full-year steering held somewhat than upgraded, there was in all probability a little bit of profit-taking occurring at the moment.

My transfer

Trying on the replace, there’s nothing to fret about right here, so far as I can see. The corporate is on observe to ship what it stated it could, whereas the long-term progress drivers stay sturdy. These embrace rising demand for worldwide journey and rising defence spending as nations bolster their armies.

As a long-term investor, I received’t be taking any revenue. I intend to carry my shares for the subsequent few years.

However what about shopping for extra? I don’t suppose this dip is giant sufficient but, however I’ll hold looking ahead to one which I believe is.