Rolls-Royce (LSE: RR) shares are the gift that keeps giving. And giving. When will they stop?

Rolls-Royce shares have soared over 100% over the last year. Over three years, they’re up a blockbuster 619%. The aircraft engine maker is one of the most explosive FTSE 100 recovery stocks I can remember.

This will delight investors, of course, but torment those who decided the excitement had gone as far as it could, and they couldn’t risk buying the shares.

Today, the Rolls-Royce share price is rocketing for two reasons. First, last week saw yet another set of expectation-smashing results, published on 27 February.

Second, the reaction to Donald Trump’s treatment of Ukrainian president Volodymyr Zelenskyy on Friday (28 February).

No FTSE 100 stock can beat this one right now

European leaders spent the weekend hammering out how much they’d have to spend to stand up to Russian leader Vladimir Putin without US support. We don’t have the exact figure yet, but it’s going to be a lot, and defence stocks flew this morning led by BAE Systems. That’s up around 14% while Rolls-Royce jumped 6%.

If a Johnny-come-lately investor had finally decided to buy Rolls-Royce shares just one week ago, they’d be thrilled. They’d also be kicking themselves, having realised how much fun it can be to hold this stock right now.

If they’d tucked away £10,000, they’d looking at a tidy £12,170, after the shares jumped 21.7% in a week.That’s a remarkable £2,170 gain in just five trading days

Last Thursday’s results included a substantial upgrade to profit forecasts, as CEO Tufan Erginbilgic engineered a 57% jump in underlying operating profit to £2.5bn in full-year 2024. 

This led the company to reinstate shareholder dividends and announce a £1bn share buyback. The Rolls-Royce share price jumped 15% on the day.

The remainder of this week’s gain came this morning amid reports that European leaders have discussed upping the NATO defence spending target to 3% of GDP. 

Rolls-Royce isn’t cheap. The shares currently trading at a price-to-earnings (P/E) ratio of around 37. That’s more than double the FTSE 100 average of around 15 times, but of course, they’ve delivered a lot more excitement.

Growth, dividends and a buyback

Last time I looked they were trading at around 45 times earnings, so last week’s upgrade has brought the P/E down.

As with any stocks, there are risks as well as threats. If Trump somehow manages to strike a peace deal with Putin, recent gains could quickly reverse. So could the order book, if European governments then start backsliding on their defence commitments.

Even the very hint of a deal could trigger a dip in Rolls-Royce shares.

Rolls-Royce appears to have a big opportunity in its small modular nuclear reactors, or ‘mini-nukes’. They open the prospect of an exciting new revenue stream but remain at the mercy of government procurement decisions. Investors could quickly cool if mini-nukes don’t make headway.

It’s hard for UK-focused investors to ignore Rolls-Royce now. They should tread carefully, as we might see a spot of profit taking. Some may wait for a dip before considering the stock. Although given today’s mood, there’s no guarantee we’ll get one.