Melrose's share price is falling again! Is this a great opportunity to buy the dip?

I Melrose Industries (LSE:MRO) share price has fallen significantly this year.

It was down sharply from the last record high of 677.6p per share recorded in April. In fact, the FTSE 100 The company fell again on Thursday (1 August) following the release of its half-year trading numbers.

At 539.2p per share, Melrose shares are currently trading 8.4% lower in today's session.

But what caused investors to charge the exit? And does the recent share price slide represent a buying opportunity?

The first part is solid

Melrose actually put in a strong performance in the first quarter, data today showed. In fact, revenue for the six months to June fell short of previous City forecasts.

Revenue rose 6.7% in the period, to £1.7bn. This means adjusted operating profit increased by 55.3% year-on-year, to £247m.

Once again, sales and profits generated by its Aerospace operations continue to impress. Engines revenue increased 21%, while Structures revenue increased 6%, helped by strong aftermarket activity and healthy demand from defense customers.

Aerospace's adjusted operating margins increased 420 basis points, to 14.9%, with Engines' margins beating forecasts due to that strong aftermarket segment.

As a result, adjusted operating profit at Aerospace increased by 48.5% year-on-year, to £260m.

… but supply-side turbulence

The bad news for Melrose's share price is that the markets are looking ahead. So while these first-half numbers were solid, investors didn't take kindly to the business again to determine revenue forecasts for 2025.

Footsie's company said it is still on track to become profitable in the next two years. This despite “ongoing supply chain challenges across the industry” of its Aerospace unit.

However, Melrose now expects full-year Aerospace revenue of around £3.8bn next year. That is down from the previous forecast of £4bn.

The market was little moved by the company raising its adjusted operating margin guidance for 2025, to 18%. This is up from 17% previously forecast to 18%.

Buying a high dip?

So what are we to make of Melrose and its declining share price? First, it's important to remember that the company's shares have risen by nearly a third in value in the 12 months to April's record high.

So it's easy to see why some investors might be tempted to take profits in recent weeks. Indeed, news of supply chain problems – an ongoing problem throughout the aerospace sector – has given them even more reason to cash out.

However, recent share price weakness does not bode well for Melrose's long-term profitability. In fact, the company's focus on the aerospace sector gives it a great opportunity to deliver profits that surpass the market.

Strong demand from defense customers is likely to continue as countries begin to rapidly rearm. The business should also benefit from the continued growth of the global commercial airline fleet as passenger numbers rise. In this case both aftermarket and parts sales should start.

And Melrose's shares look much cheaper than those of the aerospace engineer Rolls-Royce. Its forward price-to-earnings (P/E) ratio sits at 20.1 times, well below Rolls's 32.5 times.

On balance, I think Melrose could be a potential dip buy for patient investors. And especially at current prices.