UK Markets closed

Royal Mail plc (LON:RMG): Immense Growth Potential?

Simply Wall St

In March 2019, Royal Mail plc (LON:RMG) released its earnings update. Generally, analysts seem cautiously optimistic, with earnings expected to grow by 41% in the upcoming year compared with the past 5-year average growth rate of -34%. With trailing-twelve-month net income at current levels of UK£175m, we should see this rise to UK£247m in 2020. I will provide a brief commentary around the figures and analyst expectations in the near term. For those interested in more of an analysis of the company, you can research its fundamentals here.

Check out our latest analysis for Royal Mail

What can we expect from Royal Mail in the longer term?

The longer term view from the 12 analysts covering RMG is one of positive sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around three years. To get an idea of the overall earnings growth trend for RMG, I’ve plotted out each year’s earnings expectations and inserted a line of best fit to determine an annual rate of growth from the slope of this line.

LSE:RMG Past and Future Earnings, July 29th 2019

This results in an annual growth rate of 13% based on the most recent earnings level of UK£175m to the final forecast of UK£282m by 2022. EPS reaches £0.28 in the final year of forecast compared to the current £0.17 EPS today. With a current profit margin of 1.7%, this movement will result in a margin of 2.5% by 2022.

Next Steps:

Future outlook is only one aspect when you're building an investment case for a stock. For Royal Mail, I've compiled three fundamental aspects you should further research:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is Royal Mail worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Royal Mail is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Royal Mail? Explore our interactive list of stocks with large growth 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 editorial-team@simplywallst.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.