Royal Mail share price has been shredded in the past few months as investors worry about the company’s business. There are concerns about the rising cost of doing business, slow business growth, and the impacts of the strike. The RMG stock is trading at 217p, which is slightly above the year-to-date low of 259p.
Royal Mail is a well-known UK company that delivers thousands of parcels and letters every day. The firm has over 158k employees in the UK and other countries where it operates. As a specialist in the parcel business, Royal Mail had a strong performance during the Covid pandemic as demand for these services surged in the UK. The company became so profitable that it made a big acquisition by buying Rosenau, a Canadian company. It even issued a special dividend in 2021.
Now, the situation has changed and the company is under pressure. For one, like Zoom Communications, the firm’s demand has dropped remarkably as people are no longer shopping online as they did in 2021. In its recent financial results, the firm said that it was seeing a dramatic slowdown in its business operations.
At the same time, the company has seen the coat of doing business surge recently. Workers are demanding more pay to deal with the rising inflation while the cost of energy has more than doubled. Fuel is an important part of Royal Mail since the company relies on vehicles to deliver stuff.
Royal Mail has attempted to offset the rising costs by hiking prices of stamps and other services. However, the reality is that there is not enough demand to support these price increases. Therefore, analysts see a situation where Royal Mail goes back to its pre-pandemic levels. Before Covid, the company was making about $14 billion per year and a profit of less than $300 million. Now, with costs sharply higher, the firm will likely see lower profits.
The daily chart shows that the Royal Mail share price has been in a strong bearish trend in the past few months. The stock has formed a descending channel pattern that is shown in blue. It has also moved below the 25-day and 50-day moving averages. The price is between the descending channel.
Therefore, there is a possibility that the RMG stock price will continue falling barring any major announcement. If this happens, the next key support level to watch will be at 250p. A move above the resistance at 280p will invalidate the bearish view.
This post was last modified on Jul 13, 2022, 08:01 BST 08:01