Rolls-Royce shares have fallen 10% and insiders are buying the dip

Rolls-Royce (LSE: RR.) shares have pulled back recently. After rising to 1,586p in August, they’ve fallen about 10% to near 1,420p.

What’s interesting is that several company directors have been buying this dip. Could this be a sign the shares are about to rally again?

Buying activity from two ‘insiders’

On 10 September, two ‘insiders’ at Rolls-Royce bought company shares. These were Birgit Behrendt and Dame Angela Strank – both Independent non-executive directors.

The former snapped up 6,900 shares at a price of 1,427p each, costing her about £98,500. The latter made a smaller purchase (1,383 shares at 1,435p each), spending just under £20,000.

Note that Strank has made several other stock purchases this year, in July, June, and February (at prices of 1,449p, 1,255, and 1,382p).

Is this bullish?

Could this buying activity be interpreted as a bullish signal? Potentially. Company directors tend to have more information on their companies than the rest of us. So the fact that these two individuals have been buying shares would suggest that business performance remains strong and that they expect the share price to rally.

That said, these aren’t huge insider purchases. If we were talking about £500,000+ buys, I’d see the activity as more bullish. Another thing to note is that directors are not ‘top-tier’ insiders. For me, buys from C-suite insiders such as CEOs and CFOs are the most informative, as these individuals have the most information on their companies.

I’ve been buying shares too

Looking beyond this insider activity however, I’m relatively bullish on Rolls-Royce shares after their pullback. I recently bought some shares.

Yes, the valuation’s still high. Even after the pullback, the price-to-earnings (P/E) ratio is in the low-30s.

But the company’s profits are growing at a rapid clip. This year, earnings per share are expected to surge 44% year on year to 34.1p, meaning the price-to-earnings-to-growth (PEG) ratio is under one, signalling value’s on offer.

And taking a long-term view, I see plenty of growth potential here. Not only does the company look well positioned to benefit from increased defence spending from NATO countries, but it could also see strong growth from the nuclear energy boom as it’s a leading player here.

Of course, the valuation does add risk. And with oil prices back at high levels, a slowdown in global aviation activity is an issue to monitor as this could result in less revenue from engine servicing.

I intend to hold on to my shares for at least five years, if not 10 however. And I reckon that over that timeframe, they’ll comfortably beat the market.

In my view, they’re worth a look at current levels.

Should you invest £5,000 in Rolls-Royce Plc right now?

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Edward Sheldon owns shares in Rolls-Royce Holdings.