Rolls-Royce (LSE:RR.) shares remain one of the FTSE 100‘s star performers right now. Since 1 January 2025, the share price has risen a stunning 95% to £11.50 per share. It means that a £5,000 investment in the engineer back then would now be worth £9,750.
However, last year’s gains have fuelled speculation that the company’s now overbought. Its shares are now 934% more expensive than they were five years ago.
If trading shows signs of weakening, it might spark a price correction. On balance, what can we expect in 2026?
11% price rise?
Rolls is among the most covered UK shares among City analysts. More than a dozen forecasters now analyse the business, one of which is RBC Capital. It’s slapped an Overweight rating on the FTSE stock, and attached a 12-month price target of £12.75 per share. That suggests an 11% uplift from current levels.
According to RBC, the company’s moved in the last few years into a steadier delivery phase as operating performance has been more consistent, engine durability impacts have been reduced, and cash generation has increased five times over 2022-24.
With Rolls also poised to outperform the growing widebody aircraft market, RBC said it expects trading to keep beating forecasts, leading to further share price target upgrades.
Too expensive?
If the broker’s own current price targets are correct, £5,000 of Rolls-Royce shares bought today will be worth £5,543 a year from now. That might be lower than the stock’s returned over the last 12 months but, in my opinion, it’s nothing to sniff at. Combined with expected dividends, it suggests a total one-year return of 12%.
However, broker forecasts are frequently known for missing their target. So can Rolls’ share price really continue climbing?
Okay, the company’s operational performance has been nothing short of sensational. With its civil aerospace and defence markets remaining rock solid, it’s quite possible it’ll chalk up further heavy price gains.
But I have my doubts given the firm’s enormous valuation. It now trades on a forward price-to-earnings (P/E) ratio of 40.7 times. Towering above the 10-year average of 14.9 times, it suggests expected growth is more than baked into current prices.
Are Rolls shares a Buy?
Not only could this limit price rises in 2026, it may prompt a full-blown correction if future trading newsflow is anything other than outstanding.
And the FTSE firm faces significant challenges that may make this reality. The global airline industry’s stayed remarkably robust, driving demand for Rolls’ aftermarket services and plane engines. But consumer spending remains under pressure and an industry downturn can’t be ruled out.
Supply chain issues in the aerospace sector are also severe and could impact product delivery and drive up costs. Then there are other enduring risks, like fierce competition across its divisions and possible product performance issues that could smack future profits.
For these reasons, I won’t be buying Rolls-Royce shares for my portfolio. But for investors with higher risk tolerance, I think the engineer may be worth a close look.
