Yahoo Finance At UK£1.54, Is Royal Mail plc (LON:RMG) Worth Looking At Closely?
Royal Mail plc (LON:RMG), which is in the logistics business, and is based in United Kingdom, received a lot of attention from a substantial price movement on the LSE over the last few months, increasing to UK£2.51 at one point, and dropping to the lows of UK£1.54. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Royal Mail's current trading price of UK£1.54 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Royal Mail’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
See our latest analysis for Royal Mail
What is Royal Mail worth?
Good news, investors! Royal Mail is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Royal Mail’s ratio of 4.78x is below its peer average of 13.61x, which indicates the stock is trading at a lower price compared to the Logistics industry. Royal Mail’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
What does the future of Royal Mail look like?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Royal Mail, at least in the near future.
What this means for you:
Are you a shareholder? Although RMG is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. I recommend you think about whether you want to increase your portfolio exposure to RMG, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you’ve been keeping an eye on RMG for a while, but hesitant on making the leap, I recommend you research further into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Royal Mail. You can find everything you need to know about Royal Mail in the latest infographic research report. If you are no longer interested in Royal Mail, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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.
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. Thank you for reading.
