Rolls-Royce‘s (LSE:RR.) share price has been a revelation. Dividends are back with a bang too after being dropped during 2020. So how long can the FTSE 100 engineer continue to outperform?

During the past 12 months, Rolls-Royce shares have risen a stunning 102.9% in value. With a 0.8% trailing dividend yield added in, the total return improves to 103.7%. That’s almost five times the broader FTSE 100’s total return of 21%. And it would have turned a £10,000 investment into £20,370.

This is no one-off fluke. Rolls’ share price has surged 1,217% over the last five years. That’s a stunning performance that’s shamed almost every one of the ‘Magnificent Seven’ US tech stocks (only Nvidia‘s risen more, with a 1,377% gain).

It goes to show that investors can find top growth stocks close to home and don’t have to plunge into overseas stock markets to supercharge their portfolios.

So what next?

This success has created a dilemma for investors, however. Following those stunning price gains, Rolls-Royce shares now have a forward price-to-earnings (P/E) ratio of 36.6 times.

That’s miles above the 10-year average around 15. It also smashes the broker FTSE 100 current forward multiple of 13.5.

So, do City analysts think this could impact future returns? Seventeen of them currently have ratings on Rolls, producing a consensus share price target of £13.18 for the next 12 months. That’s up 8.8% from today’s £12.11.

Factoring in a 0.9% dividend yield, a £10k investment in the engineer today could turn into £10,970 by February 2027. That’s not bad at all. But it’s clearly a long way off the returns investors have got used to in recent years. The City clearly thinks Rolls shares might be running out of road.

The good and the bad

Under Tufan Erginbilgiç, the FTSE firm has flown clear of the carnage of the Covid-19 era. Its CEO has overseen a period of balance sheet transformation, extensive restructuring and a dramatic improvement in earnings growth. This could continue, given the bright outlook for key civil aerospace, defence and power systems markets.

Yet is the good news currently baked into Rolls’ share price? Those analysts seem to think so. But that’s not the only problem for me as an investor. A high valuation like the share currently has could easily prompt a price retracement if trading begins to weaken.

And Rolls faces several major threats that could make this a reality. Supply chain problems and rising costs could scupper Erginbilgiç’s ongoing recovery plan. A possible downturn in the civil aviation market also needs to be taken seriously, as does fierce competition from global rivals.

Are Rolls shares a Buy?

It’s important to say that broker forecasts aren’t always reliable. Few expected Rolls-Royce’s share price to explode the way it has in recent years. Analysts could be wrong again.

What’s more, the City remains overwhelmingly positive on the company — 13 consider it a Strong Buy, one a Buy, and only one a mere Hold.

This could make Rolls shares a strong stock to consider for many investors. But for me, the dangers it faces at the start of 2026 mixed with that high valuation make it too risky. I think I’ll look for other growth stocks to buy.