2026 feels like it has been a long year already, and we’re only in March! With heightened market volatility driven by geopolitical tensions worldwide, Rolls-Royce (LSE:RR) has been in the headlines over its defence division. If an investor had put £1,000 in Rolls-Royce shares at the beginning of January, here’s what it would be currently worth.

Grinding higher

At the start of the year, the stock was trading at 1,150p. It’s now at 1,276p. This reflects an 11% gain in under three months and is almost double the performance of the broader FTSE 100. This would mean the £1k would be worth £1,100. Of course, this profit isn’t realised until the investor sells. So, it will fluctuate on a daily basis in the meantime.

However, relative to the rest of the index, it’s clear Rolls-Royce has continued to build on the 55% gain in the past year. Since January, concerns around wars and conflicts have supported the stock to move higher. The company has a strong defence division, primarily in power and propulsion systems, with investors anticipating increased demand, particularly from public sector clients.

Another short-term boost came from full-year results, which were released last month. I thought that most of the multi-year transformation process was now finished. But the results showed revenue up a further 12%, with operating profit up almost 29%. With the dividend hiked by 32% as well, income investors may be more interested in the business.

The rest of the year

I’ve written in recent months about how I struggle to see the company as being a strong purchase right now. The double-digit gains so far this year prove me wrong in the short term, but let’s take a step back. The share price has been a rocketship for several years now. Over the last five years, it has surged 880%.

Yet the bar of expectations is now set very high. The price-to-earnings ratio is several times the FTSE 100 average, and the market cap is now over £100bn. In my view, this makes it harder for the share price to rally at the same pace for the rest of the year. It’s no longer an undervalued gem.

Even though the start of the conflict in the Middle East saw some investors buy the stock for defence outperformance, the longer the conflict goes on, the more negative it could be for the stock. Supply chain disruption with component availability and labour could become problematic and inflate costs later this year.

Another point to consider is the chunky revenue from commercial aerospace contracts. If flights around the Middle East remain cancelled for a longer period, it could reduce airlines’ servicing requirements and hit Rolls-Royce.

It’s plausible that the stock could keep going. The CEO said that “beyond the mid-term we continue to see significant growth from existing businesses as well as from new business opportunities.” Therefore, if it can find new places to expand revenue, profits could still scale.

Overall, the stock has continued to rally so far this year, although I’m sceptical about the pace being maintained, so I won’t be investing right now.