There’s no denying Rolls-Royce shares have been dominated the UK market. Clocking a 1,000% gain in just a few years, they’re now changing hands at over 1,300p each!

Although the aerospace and defence giant continues to post spectacular results, I can’t help but think most of the gains are now priced in. For value investors hunting something with more growth potential, I think one of its rivals looks more promising.

An up-and-coming contender

Babcock International (LSE: BAB) has been one of the standout performers in the FTSE 100 over the past year. Up more than 100%, it’s outpaced even Rolls’ impressive rally, thanks to booming demand in defence and support services. Now, investors are asking if Babcock could achieve growth similar to Rolls since its pandemic lows. 

Admittedly, defence can be a questionable industry as there’s always uncertainty around the ethics of its products. This poses both a risk and moral implication that investors should take into consideration.

Crunching the numbers

In its latest half-year results to September 2025, Babcock posted earnings growth of 49% year-on-year, while revenue climbed a solid 7.4%. That’s no flash in the pan — it’s coming from a £9.9bn order backlog across submarine, aviation and training contracts.

Furthermore, operating margins expanded moderately to 7.9%, indicating improving efficiency at extracting more profit from sales. The full-year outlook remains steady, with management guiding for continued growth.

Valuation-wise, the shares trade at a forward price-to-earnings (P/E) ratio of 24.6, slightly below the average for aerospace and defence peers. That’s reasonable when you consider analysts forecast earnings to grow 7.5% annually for the next few years.

Compared to rivals such as BAE Systems, it’s trading at fair value, not stretched like some high-flyers. Think of it like buying a reliable work van that’s done a few extra miles but comes with a full service history. A solid income earner without the premium price tag.

The pros and cons

Naturally, nobody wants to see global conflicts drag on unnecessarily. Unfortunately, that’s where we are, which means UK defence spending is set to rise. With the UK government committing 2.5% of GDP by 2027, Babcock’s set to continue bringing in revenue for the foreseeable future.

Of course, it isn’t risk-free. Contract delays or cost overruns — common in defence — could squeeze margins. Plus, any easing of geopolitical heat might slow new orders. And a more pronounced market wobble could hit the shares hard too.

The bottom line?

It’s unlikely Babcock (or any share) will be able to replicate Rolls-Royce’s once-in-a-lifetime performance. Growth like this is seldom seen in anything other than highly-speculative tech stocks – and often, it’s followed by a big crash.

However, based on recent performance and supportive macro headwinds, I think Babcock’s one of the more appealing growth stories right now. The 1.6% dividend yield may be a bit underwhelming for income investors but, growth-wise, I see lots of potential.

If you’re after a steady, reliable gainer that has long-term legs, I think it’s worth considering. More interested in dividends? There’s also a host of attractive income stocks on the FTSE 100 right now…