Royal Mail Share Price Forecast September 2021 – Time to Buy RMG Stock?

Shares of British multinational postal service and courier company, Royal Mail (LSE: RMG) are currently trading around the 494p range, falling around 18% from what they were back in June. RMG shares reached highs of 600p in June before declining to their current share price range. Many investors think this dip gives them the right opportunity to pick up RMG shares.

Royal Mail – Technical Analysis

According to Royal Mail’s financial statement, the company’s market cap is £4.854 billion with total assets worth £9.985 billion. Revenue for 2020 was at £12.6 billion with a profit margin of 4.91% compared to £10.84 billion in 2019.

Moving averages for Royal Mail such as Exponential Moving Average (50)(516.3), Simple Moving Average (50)(526.6), Exponential Moving Average (100)(513.5), and Simple Moving Average (100)(536.4) are indicating a sell action. On the other hand, oscillators such as Relative Strength Index (14)(42.9), Stochastic %K (14, 3, 3)(38.9), Commodity Channel Index (20)(−19.1) and Average Directional Index (14)(40.6) are all neutral.

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Recent Developments

Royal Mail benefited from a significant increase in parcel delivery volume thanks to the pandemic last year. The company’s growth has since slowed down despite revenues not starting to contract yet as expected. On top of that, the company’s management has announced spending of hundreds of millions of pounds on infrastructure which is unavoidable at this point.  The increased spending will reduce profitability in the long run. However, there has never been a better time for the company to invest in its operations.

The main catalyst for the rise in its share price was the full-year trading update which the company released in May.  According to this trading update, Royal Mail’s revenue has risen over 16% to cross £12 billion. Operating profits swelled by 116% from the year before to reach £702 million. These numbers were primarily driven by the strong parcel growth experienced by Royal Mail and GLS, its subsidiary.

However, Royal Mail recently released its first-quarter trading update, which was less impressive and could’ve contributed to the recent share price decline. Its price-to-earnings ratio at 9.5 is lower than most of the other companies featured in the FTSE 100. Profits may have dipped due to the lower parcel volume experienced this quarter. Profits will also be hampered due to the management’s infrastructure spending which is necessary. This may cause volatility in RMG share prices, especially in the short term, forcing them to dip even lower.

Should You Buy RMG Shares?

Royal Mail is paying the price for the inefficiencies of its previous management who failed to invest in automated processes and efficiencies. The higher levels of expected capital spending will certainly affect the profits in the short term but are necessary for yielding results in the long term.  As the e-commerce sector expands, the company’s delivery volumes are also expanding.  However, this presents a problem for short-term investors, as RMG shares will continue to decrease as investors re-evaluate the company’s prospects.

However, long-term investors shouldn’t be concerned about quarterly results. They are more interested in the current capital spending that will yield results over the next 5 to ten years. The company has also undergone mass restructuring last year during the pandemic, which should help improve the company’s profit margins over the long term. This is an essential step forward for the company as poor profit margins have held it back in the past. With the e-commerce sector set to continue rising over the next couple of years, there is no reason to believe that the company’s performance in 2020 was a “one-off”. Considering the above points, investors should buy into this dip right now and pick up RMG shares.

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