I’ve tracked Rolls-Royce (LSE:RR.) shares for years, but I still find their recent performance difficult to comprehend. The shares have soared from around 112p on 7 August 2021 to 1,569p as of 7 August, a gain of about 1,300%.

To get an idea of the kind of returns that could have been made, I recently asked ChatGPT to estimate how much the average 40-year-old Londoner typically holds in cash savings. Its answer was £28,978.

That’s an estimate, not an official statistic, but it provides a relatable starting point. So what could that be worth today if an investor had put the entire sum into Rolls-Royce five years ago? The answer is, unsurprisingly, a lot.

A life-changing hypothetical

Increasing £28,978 by 1,300% produces £405,692, assuming no dealing costs, taxes or dividends. That’s fourth-fifths of the way to half a million pounds – enough to buy a modest London home outright.

But, of course, the investment would’ve required extraordinary conviction and confidence. I wouldn’t have had that confidence.

Five years ago, Rolls-Royce was still a recovery story. Few investors could have predicted the combination of operational progress, improving cash generation, civil aerospace recovery and defence demand.

Past performance isn’t a template. A 1,300% gain requires turning £1 into £14, or roughly a 70% annual compound return over five years. That raises an interesting question: if I were looking for a potential Rolls-Royce-style recovery today, where would I start?

Why Babcock interests me

One candidate on my watchlist is Babcock International (LSE: BAB). I wouldn’t expect it to repeat Rolls-Royce’s return, but it exhibits similar features of a potential long-term compounder: defence exposure, improving profitability, cash generation and considerable contract visibility.

Babcock’s latest full-year results, for the year ended 31 March, showed:

• Revenue of £5,178m, up from £4,831m.
• Underlying operating margin of 8.2%, versus 7.5%.
• Underlying free cash flow up 71% from £153m to £262m.
• Contract backlog of £9.8bn and underlying cash conversion of 84%.
• Net cash (excluding leases): £23m.
• Net debt (included leases): £329m.

The company also launched a further £200m share buyback programme. Chief executive David Lockwood described the defence giant as “a more resilient business today, with clear momentum and strong visibility”.

It’s not identical to Rolls in 2021, but exhibits similar balance sheet repair and operational improvement. But with the shares up 27% in the past year, much of the recovery gains may already be baked in.

The risks I would watch

Babcock still faces execution risk, including cost overruns or delays on complex contracts. Government defence priorities can change, and strong expected growth may already be reflected in the share price. 

The 8.2% margin also excludes the impact of a £140m Type 31 contract charge, so it’s worth examining reported and underlying figures carefully.

So, will Babcock ‘pull a Rolls’ over the next five years? Probably not to the same degree, but the latest figures and impressive earnings visibility indicate a business with strong potential for further growth.

For me, that makes it worth closer inspection – and perhaps more realistic than expecting Rolls-Royce to achieve another 1,300% gain.

Should you invest £5,000 in Babcock International Group Plc right now?

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Mark Hartley does not hold any positions in the companies mentioned.