Rolls-Royce (LSE: RR) shares are the toast of the FTSE 100 and with good reason. They’ve surged a staggering 635% over the last three years, including a 70% rise in the past 12 months alone.

The FTSE 100-listed engineering group has delivered one of the great stock market comebacks of recent times. When CEO Tufan Erginbilgiç took the reins in January 2023, many were still questioning the group’s long-term future. 

Today, it’s a completely different story. He’s taken a sprawling, sluggish engineering giant and turned it into a leaner, meaner machine, and investors have reaped the rewards.

Can this FTSE 100 star fly even higher?

Resurgent demand for international travel has helped drive growth in the firm’s civil aerospace division. 

Stronger Western defence spending has given it another boost. Donald Trump’s brand of economic turmoil has helped by spurring NATO nations to step up investment.

Rolls-Royce isn’t immune to global jitters though. This past week has delivered a reality check.

Over just five trading days, the share price has fallen by around 7%. That means anyone who put £10,000 into Rolls-Royce shares a week ago is now looking at a paper loss of £700. Their investment would be worth roughly £9,300 today.

In the grand scheme of things, that isn’t a disaster. We’ve seen some violent swings across the market lately, and Rolls-Royce has held up better than most. But it’s a reminder that no stock rises in a straight line.

The share price drop might even present a second chance for investors who felt they’d missed their moment. 

At the time of writing, Rolls-Royce is trading on a price-to-earnings ratio of about 34. That’s rich compared to the FTSE 100 average of around 16, but arguably fair for a company that’s shown it can grow at this pace.

Still, I wouldn’t be piling in too enthusiastically just yet.

Valuations like this bring pressure. When expectations are so high even a small bit of bad news could send the share price plunging.

Dividends, growth, and share buybacks

And while Rolls-Royce is diversified, its bread and butter remains aircraft engines. More specifically, the real money is in long-term maintenance contracts, which depend on how much flying takes place. A global recession could put a dent in that.

Then there’s the long-awaited decision on its small nuclear reactors, or mini-nukes. This could be a huge growth avenue, but until governments give the go-ahead, we just don’t know.

Analyst sentiment is broadly positive though. Of the 18 experts covering the stock, 10 rate it a Strong Buy, three rate it a Buy, and just one calls it a Sell. Some of those views likely pre-date this latest wobble, although are unlikely to have changed much.

In my view, anyone considering buying Rolls-Royce today should forget about dazzling recent performance. It’s historic. In the past. Over. 

The future’s likely to be a slower grind and as much about dividends as dazzling share price gains. The forecast 2025 yield is a modest 1.13%, although the ongoing £1bn share buyback is a nice bonus.

It’s still a great company. though. And still well worth considering, but with a long-term view.