2026 seems like a long time ago already, and we’re only in March! With increasing market volatility due to geopolitical tensions around the world, Rolls Royce (LSE:RR) has made headlines over its defense division. If an investor put £1,000 into Rolls-Royce shares at the beginning of January, here’s what it would be worth currently.

Top grinding

At the beginning of the year, the share price was trading at 1,150 pence. It’s now at 1,276 pixels. This reflects an 11% gain in less than three months and is almost double the performance of the broader sector FTSE 100 index. This means that £1,000 would be worth £1,100. Of course, this profit is not realized until the investor sells. Therefore, it will fluctuate on a daily basis in the meantime.

However, compared to the rest of the index, it is clear that Rolls-Royce has continued to build on its 55% gain last year. Since January, concerns about wars and conflicts have helped fuel the stock’s rise. The company has a strong defensive division, primarily in power and propulsion systems, where investors expect increased demand, especially from public sector customers.

Another short-term boost came from full-year results, which were released last month. I thought most of the multi-year transformation process was over now. But the results showed revenues rising another 12%, with operating profits up nearly 29%. With the dividend also up 32%, income investors may be more interested in the business.

The rest of the year

I’ve written in recent months about how difficult it is to see the company as a strong buy right now. The gains of more than 10% so far this year prove me wrong in the short term, but let’s take a step back. The stock price has been skyrocketing for several years now. Over the past five years, it has risen by 880%.

However, expectations are very high now. Its price-to-earnings ratio is several times the FTSE 100 average, and the market capitalization is now more than £100bn. In my view, this makes it difficult for the stock price to rise at the same pace for the rest of the year. It is no longer an undervalued gem.

Although the beginning of the conflict in the Middle East saw some investors buying the stock for the defensive outperformance, the longer the conflict lasts, the more negative it is for the stock. Supply chain disruptions due to component and labor availability could become an issue and inflate costs later this year.

Another point to consider is the significant revenues from commercial aviation contracts. If flights across the Middle East remain canceled for a longer period, this could reduce airline service requirements and impact Rolls-Royce.

It is plausible that the stock will continue to rise. The CEO said so “After the midterm, we will continue to see significant growth from existing businesses as well as from new business opportunities.” Therefore, if you can find new places to increase revenue, it is still possible to increase profits.

Overall, the stock has continued to rise so far this year, although I’m skeptical about maintaining the pace, so I won’t invest now.