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Why I think the Rolls-Royce share price is one of the cheapest stocks in the FTSE 100

The Rolls-Royce (LSE: RR) share price performance has been exceptionally volatile in recent months. Investor sentiment has been impacted by a changing outlook for the world economy, while geopolitical risks have remained elevated.

Now, though, the company appears to have a sound strategy through which it’s forecast to deliver improving levels of profitability. As such, it could outperform the FTSE 100, and may be worth buying alongside another cheap share that reported encouraging results on Wednesday.

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Improving performance

The company in question is recruitment business PageGroup (LSE: PAGE). Its full-year results showed a revenue rise of 14% to £1,549.9m, with gross profit increasing 14.5% to £814.9m. This represented a record year for the business, delivering growth across all five of its key markets. For example, growth in the US was 25%, it reached 19% in China, while in Germany it was 29%.

During the year, the company increased its number of fee earners by 11.3% to 619. Its headcount is now at a record level of 7,772, while there’s been an improvement in fee earner to support staff headcount ratio.

Looking ahead, PageGroup is forecast to post a rise in earnings of 16% in the current year. Since it trades on a price-to-earnings (P/E) ratio of around 13, this suggests that it could offer good value for money. It continues to focus on expansion and, while macroeconomic risks may be high at the present time, its long-term growth potential seems to be high. This could lead to a rising share price over the coming years.

Growing industry

As mentioned, the performance of the Rolls-Royce share price over recent months has been highly volatile. The company has been subject to changing investor sentiment regarding the global growth outlook, although it has been able to make steady progress with the implementation of its revised strategy. It has reduced headcount, while continuing to invest heavily in its pipeline. Together, these changes could improve its long-term financial performance, while creating a business with a stronger competitive advantage versus industry peers.

With defence spending due to increase at a faster pace in future and the number of civil aircraft forecast to rise rapidly over the long run, Rolls-Royce seems to have significant growth catalysts. In the current year, it is forecast to deliver a 118% rise in earnings, which puts its shares on a price-to-earnings growth (PEG) ratio of around 0.3. This suggests that the stock offers a wide margin of safety, and may have FTSE 100-beating potential.

Certainly, there are risks ahead from challenges such as increasing global protectionism and a slowing Chinese growth rate. However, with such risks appearing to be priced into the company’s valuation, it could deliver impressive total returns in the long run. As such, now could be the right time to buy it.

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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.