The once red-hot Royal Mail share price has lost its magic touch. The RMG stock plummeted to 329p, which was the lowest level since January 2021. The shares have collapsed by almost 40% from its highest level this year. As a result, it has lagged the performance of most companies in the FTSE 100 index.
Royal Mail has been caught in the ongoing rotation from lockdown stocks to reopening ones. The concept behind this is simple. During the height of the pandemic, companies like Royal Mail, Zoom Video, and Teladoc benefited as people moved to work from home. In Royal Mail’s case, its stock price jumped to over 550p.
With the UK having reopened, the volume of mail and parcels has plummeted since people are now free to travel. As such, investors are pricing in a dramatic collapse of its demand in the coming quarters. Another challenge is that the company’s cost of doing business is rising as energy and wages remain at elevated levels. All this will affect its margins.
Another reason why the Royal Mail share price has collapsed is that there is an increasing chance of a strike in the coming weeks. Unions have threatened to down their tools as they accuse the firm of having a fire and rehire policy. The company intends to fore 1,000 managers and then rehire some of them at lower pay in a bid to save costs. As a result, most analysts have lower expectations about this.
I have been warning about the RMG stock price several times before. You can read some of these warnings here and here. In them, I wrote that the stock’s momentum was against it and would drop to about 300p in the coming months.
These predictions were accurate, and sadly, the situation has not improved in the next few months. Instead, it has formed a death cross and remained below the short and long-term moving averages. Therefore, the stock will continue falling as bears target the next key support level at 300p. This prediction will become invalid if it moves above 350p.
This post was last modified on Apr 01, 2022, 09:16 BST 09:16