In recent years, there have been few if any British blue-chip shares like Rolls-Royce (LSE: RR). Over the past five years, the FTSE 100 index of leading UK shares is up 50%. During that period, Rolls-Royce shares have soared by a staggering 1,097%.
Still, the shares have been wobbling lately.
They are up on the year to date – by 5% — but that slightly lags the FTSE 100’s gain of 6% so far in 2026. The Rolls share price is around 8% lower than it was a little over a month ago.
What’s going on? Is the share taking a breather, potentially making now a good time to consider it? Or has there been a bigger change?
The business environment has shifted
In the short term, this could be a temporary breather. If the war in the Middle East conclusively ends I expect share prices could jump.
That may well be especially true of Rolls Royce, as its share price is tied to risks including weaker civil aviation demand. We saw that during the pandemic.
But I am a long-term investor – and the bigger picture here is what concerns me.
Even if the war ends soon – and there is no guarantee of that – it may take months or even years for oil prices and consumer confidence to stabilise.
That could be bad news for civil aviation demand, potentially reducing the frequency of jet engine servicing if flying hours fall. It could also hurt demand for new planes as airlines try to control their costs. I see that as a risk for Rolls-Royce shares.
The share price looks high to me
Of course, all shares carry risks. When it comes to the impact of the war, Rolls may actually be in a better position than some other shares.
For example, British Airways’ parent International Consolidated Airlines Group has fallen 10% so far this year, while easyJet and Wizz Air have ‘crashed’ 28% and 29%. Compared to that, a gain of 5% in the year to date looks strong.
But my concern about Rolls-Royce shares is that, even now, the risks may not be fully priced in. At 43 times earnings, the price looks too high to me.
Why might the share price be valued that way?
Rolls has proven in recent years that it is able to keep a tight lid on costs and consistently meet demanding financial targets. That bodes well for ongoing success.
For now, at least, concerns about civil aviation flying hours are no more than a concern – the company has not yet made changes to its outlook for the year.
Meanwhile, demand remains strong for defence and power systems. If anything, I think the war could see that trend continue.
Not for me
Still, as an investor I always aim to take risks seriously when considering what I think is a fair price for a share.
Rolle-Royce shares look overvalued to me as things stand. I think the company needs to perform brilliantly to justify its current share price, let alone a higher one.
In the current environment, some key factors outside its control pose a risk to such performance. So I will not be investing.
