As an investor, I look for investments which do not compromise one fundamental factor for another. By this I mean, I look at stocks holistically, from their financial health to their future outlook. In the case of Royal Mail plc (LON:RMG), it is a company that has been able to sustain great financial health, trading at an attractive share price. In the following section, I expand a bit more on these key aspects. For those interested in understanding where the figures come from and want to see the analysis, read the full report on Royal Mail here.
Undervalued with excellent balance sheet
RMG’s debt-to-equity ratio stands at 9.3%, which means its debt level is reasonable. This means that RMG’s capital structure strikes a good balance between low-cost debt funding and maintaining financial flexibility without overly restrictive terms of debt. RMG's has produced operating cash levels of 1.14x total debt over the past year, which implies that RMG's management has put its borrowings into good use by generating enough cash to cover a sufficient portion of borrowings. RMG's shares are now trading at a price below its true value based on its discounted cash flows, indicating a relatively pessimistic market sentiment. Investors have the opportunity to buy into the stock to reap capital gains, if RMG's projected earnings trajectory does follow analyst consensus growth, which determines my intrinsic value of the company. Also, relative to the rest of its peers with similar levels of earnings, RMG's share price is trading below the group's average. This supports the theory that RMG is potentially underpriced.
For Royal Mail, there are three fundamental aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for RMG’s future growth? Take a look at our free research report of analyst consensus for RMG’s outlook.
- Historical Performance: What has RMG's returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other Attractive Alternatives : Are there other well-rounded stocks you could be holding instead of RMG? Explore our interactive list of stocks with large potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.