Rolls Royce (LSE:RR.) is still one of FTSE 100 indexMost exciting stocks. They reached a new peak of £13.68 per share last week, and although they have pulled back from that level, they are still 65% higher than they were a year ago.

The question is: Can the engineering giant continue its upward trend? City analysts are very confident they can. They expect the Rolls-Royce share price to rise 11% from £12.76 today to £14.12 in 12 months. This is based on the average price forecast of 16 analysts.

They also expect the company to pay a dividend of 11.04 pence per share. If these predictions are correct, an investment of £20,000 today would be worth £22,303 a year from now.

However, I am increasingly skeptical about these predictions.

Military conflict raises risks

Rolls-Royce was one of the worst performing FTSE shares this week. Perhaps this is not so surprising, given the impact of military action in the Middle East on the aviation industry.

The engineer relies on the strong civil aviation sector to increase profits. Last year, it generated 62% of its total core operating profit from activities such as aircraft engine sales and aircraft maintenance. The problem is that flight cancellations due to the US-Israeli-Iran conflict leave planes grounded, reducing flying hours and thus revenue service under “hourly power” contracts.

Moreover, rising fuel costs are hurting airline profits, and could continue to rise if shipping route closures impact oil supplies. Lower industry profits could translate into weaker demand for Rolls’ power units if airlines delay orders for new aircraft.

Finally, shipping disruptions could deepen the supply chain problems already plaguing airlines. In this scenario, costs may rise and project delays may occur.

On the plus side, Rolls’ defense division could benefit if a prolonged conflict gives US arms spending an extra boost. But will this offset those other pressures we discussed? I don’t think so.

High rating

The problem is that even after their recent decline, Rolls-Royce shares still look pretty expensive. The price-to-earnings ratio remains at 38.4 times, which is well above the long-term average (15 to 16). For investors looking for stocks to sell, it could therefore remain a prime candidate to sell.

Rolls has proven its credentials as a high growth segment worthy of the premium rating. Last year, earnings per share (EPS) jumped 46% year over year. Analysts are forecasting further strong growth of 19% in 2026. But this creates additional risks – even the slightest whiff of missing this target could send Rolls-Royce’s share price tumbling.

It is not only the Middle East war that can make this a reality. A severe economic slowdown hitting end markets, current supply chain issues, and contract losses due to the competitive landscape could push the FTSE down sharply.

Is Rolls stock a potential buy?

There’s a lot to like about today’s Rolls-Royce. And with a longer-term restructuring program that tends to offer more exciting rewards, it could be a great stock for more risk-tolerant investors to consider. But I wouldn’t buy it for my wallet at current prices.