Rolls-Royce (LSE: RR) shares are quite frankly fabulous. This is the FTSE 100 stock of the decade. Everybody loves a comeback, don’t they? We certainly got one here.

The great British engineering company almost collapsed during the pandemic. Global fleets were grounded and the lucrative revenues it generated from servicing aircraft engines on miles-flown contracts dried up. It’s almost impossible to imagine today, but in October 2020 the shares slumped to just 39p. Today, they trade at 1,443p. That’s a staggering 3,600% gain.

Anybody who bought around those levels and held on is in clover today.

Great blue-chip transformation

Much of the credit goes to CEO Tufan Erginbilgic, who took over in January 2023. He immediately launched a transformation programme focused on costs, efficiency, commercial discipline and cash generation. It’s worked spectacularly well.

In the first half of 2026, underlying operating profit jumped 46% to £2.5bn, while free cash flow rose 24% to £2bn. Rolls-Royce raised its full-year profit guidance to £4.7bn to £4.9bn and cash flow guidance to £3.8bn to £4bn.

Erginbilgic has now beaten expectations repeatedly and is heading for another year of strong growth. Despite that, the shares have slowed. They’re up just 26% over the past year. That beats the average FTSE 100 return of 15.5%, but 29 UK blue-chips have done better.

The valuation problem

The Rolls-Royce rocket ship had to slow at some point. And looking at the price-to-earnings (P/E) ratio, which now stands at 50, it isn’t hard to see why. That’s way above the typical FTSE 100 P/E of around 16, leaving little room for disappointment.

If anyone can live up to that premium valuation, Rolls-Royce can. The forward number is much less frightening. Current forecasts put the 2026 P/E at about 35x, falling to around 31x in 2027.

That’s still expensive, but earnings are growing rapidly. Rolls-Royce also has a habit of beating targets, and I suspect Erginbilgic will be reluctant to set targets he doesn’t believe he can smash.

There are growing challenges across all three divisions. Expensive jet fuel could reduce flying hours and hit Civil Aerospace. Defence spending could disappoint if Western governments struggle to find the cash, while Power Systems’ data centre boom may cool, depending on what happens to artificial intelligence. Small modular reactors offer a huge potential source of new revenues, but are a long way from becoming a dependable earnings stream.

Time to take profits?

Any of those could knock the shares back sharply. So should investors take profits?

Personally I’m reluctant to let go. My stake in Rolls-Royce is still below the 5% maximum I set for any individual portfolio holding, so I’m hanging on for the long term.

But I can’t see myself putting more money into the stock at today’s toppy valuation. Investors who have an outsized exposure might consider taking some of their profits and diversifying a little. Those without a position should only consider buying if they’re comfortable paying a hefty price for continued growth. But I can see more exciting growth prospects on the FTSE 100 today…

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Harvey Jones owns shares in Rolls-Royce.