Stock

Is Royal Mail a good stock to buy after the 54% plunge?

The Royal Mail (LON: RMG) share price has been in a freefall as the company continues fighting numerous battles. The stock has crashed to 264p, which is about 54% below the highest point in 2021. Its market cap has crashed to about 2.4 billion pounds.

The plot thickens

Royal Mail is a leading postal company in the UK. It offers services like letters and cargo. The firm, which was previously owned by the government, had a strong performance during the pandemic. 

At the time, the shares jumped to an all-time high in 2021, which saw it enter the prestigious club of FTSE 100. This happened as the company saw an uptick in parcel demand as people stayed at home.

Royal Mail did so well that it decided to enter the M&A scene. In 2021, it spent more than 400 million pounds to acquire Rosenau, a Canadian logistics company. It even issued a special dividend in a bid to reward its investors.

This year, however, Royal Mail has seen a change of fortune as it fights numerous battles. First, it has seen the volume of parcels crash hard this year. Besides, people are now free to do shopping in stores. Indeed, in May, the company warned that it had seen a dramatic decline in activity.

Second, the slowdown in demand has coincided with a dramatic increase in the cost of doing business. For example, the price of diesel and petrol has jumped by more than 50% since the pandemic started

The firm is also seeing substantial wage growth. Its unionized workers voted to go to their biggest strike this summer. They are seeking work guarantees and higher salaries. All this will lead to thinner margins, which will affect its profitability.

Still, the recent decline of Royal Mail shares has left a company that is relatively undervalued compared to peers. The stock will remain pressured until a fresh catalyst emerges.

Royal Mail share price forecast

In my last article, I warned that the RMG stock price was hanging on a thread. I concluded that the stock will likely continue falling and retest the support at 250p. This view was correct as the stock has moved from 285p to the current 264p. It remains below the 25-day and 50-day moving averages. 

The shares have formed a descending channel that is shown in blue. Therefore, there is a likelihood that the Royal Mail share price will continue falling in the coming weeks. If this happens, the next target is at 250p.

The post Is Royal Mail a good stock to buy after the 54% plunge? appeared first on Invezz.

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