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Retire wealthy: why the RBS share price could smash the FTSE 100

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Although the RBS (LSE: RBS) performance has been somewhat mixed in recent years, the outlook for the banking stock appears to be increasingly positive. It’s forecast to post positive earnings growth in each of the next two financial years, while a wide margin of safety suggests that it may offer upside potential.

Of course, it’s not the only stock that could outperform the FTSE 100. Reporting on Tuesday was a company which is performing well and that could offer a wide margin of safety when compared to a number of its FTSE All-Share peers.

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Impressive performance

The company in question is recruitment specialist Robert Walters (LSE: RWA). It released third quarter results that showed a 13% rise in net fee income, with the Asia Pacific and Europe regions producing the strongest rates of growth. It has expanded its international footprint during the period, with new offices opened in Geneva and Los Angeles. Its growth has continued to be broad-based across permanent, contract, interim and recruitment process outsourcing.

Looking ahead, the company is forecast to post a rise in earnings of 9% in the next financial year. This puts its shares on a price-to-earnings growth (PEG) ratio of 1.8, which suggests it could offer a wide margin of safety.

With relatively bright prospects for the world economy, the outlook for Robert Walters seems to be improving. The company’s exposure to both emerging and established markets could provide a mix of growth and resilience in the coming years. Since it has a net cash position of £41.3m, and what appears to be a sound strategy, it could offer FTSE 100-beating performance.

Improving prospects

Also offering the opportunity to outperform the FTSE 100 is RBS. The company is forecast to post a rise in earnings of 6% in the current year, followed by further growth of 5% next year. Beyond that, it would be unsurprising for the company to deliver further growth in its bottom line. The PPI deadline could provide a financial boost, while the forecast for a rising interest rate may offer more profitable trading conditions over the medium term.

With RBS trading on a price-to-earnings (P/E) ratio of around 10, it appears to offer good value for money, given its growth outlook. Certainly, many investors may remain cautious about its investment outlook. But with an improving bottom line, it could become an increasingly strong performer over the coming years.

In terms of management’s confidence in its outlook, a rapidly-rising dividend forecast over the next couple of years suggests that they are positive about its prospects. A forward dividend yield of 5.2% for 2019 indicates that the stock may become an increasingly popular income share, which could help to boost its capital growth potential over the next few years. As such, now could be the right time to buy it, with FTSE 100-beating potential ahead.

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Peter Stephens owns shares of Royal Bank of Scotland Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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