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Retire wealthy: why the Rolls-Royce share price could smash the FTSE 100

The prospects for Rolls-Royce (LSE: RR) appear to be improving. The company is in the process of putting in place a refreshed strategy which will see major headcount reductions as it seeks to become a more efficient business. Alongside this, strong growth potential within civil aerospace and defence could lead to rising profitability.

However, it’s not the only share which could beat the FTSE 100 and help you to retire wealthy. Reporting on Thursday was a cheap stock that has a bright future. As such, it could be worth buying alongside Rolls-Royce for the long term.

Impressive performance

The company in question is owner and operator of student accommodation across the UK, Empiric Student Property (LSE: ESP). The company released a trading update which showed that bookings for the 2018/19 academic year have reached 96%, which is significantly ahead of last year. New reservations are continuing, and the business is on target to reach the full occupancy goal of 97%.

The company’s plan for the facilities management of 57 properties to be brought in-house by 31 March 2019 is on track. Hello Student assumed the marketing and lettings management of the company’s entire portfolio last month, with it also being responsible for facilities management for 27 properties.

Looking ahead, the Empiric Student Property share price could move higher. It trades on a price-to-book (P/B) ratio of around 0.9, while a dividend yield of 5.2% suggests that it offers impressive income prospects. With demand for student accommodation set to remain high over the medium term, its total return potential appears to be appealing.

Changing business

The investment outlook of Rolls-Royce may also allow it to beat the FTSE 100 over the long term. As mentioned, headcount reductions are ahead, and around 4,600 employees are expected to be made redundant. This is due to create a more efficient business that is able to generate stronger cash flow. In turn, improving cash flow can be used to invest in R&D, with the company’s pipeline of new products being relatively exciting.

Demand for engines within the civil aerospace segment is likely to increase as the number of aircraft continues to grow across the globe. Similarly, defence budgets are increasing, and this could lead to greater demand for the company’s products over the coming years. In the US especially, military spending is increasing at a rapid rate under the Trump administration, and this trend is likely to accelerate should GDP growth remain robust.

Despite the growth potential which Rolls-Royce offers, its shares trade on a price-to-earnings growth (PEG) ratio of just 0.3. This suggests that there is a margin of safety on offer, and that the company’s stock price may be low. This could provide scope for it to outperform the FTSE 100 over the long term, with there being clear internal and external catalysts present.

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Peter Stephens owns shares of Rolls-Royce. 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.