Royal Mail (LSE: RMG) shares have failed to excite in recent times. In fact, the stock’s down 53% in the past 12 months. And Royal Mail has fallen 47% this year alone. The soon-to-be FTSE 250 courier business currently trades for 274p.
So, why has the firm seen such a deterioration in its share price? And should I be looking to load up on these cheap shares? Let’s explore.
Why Royal Mail shares have sunk
So why have the shares seen such a sharp decline? Firstly, this can be attributed to its post-pandemic performance. With normal proceedings having been halted for a large part of the past two years, the firm gained from an upturn in Covid-related online shopping. However, with the world returning to normal, Royal Mail has suffered. The firm missed analysts’ consensus targets for its adjusted operating profits. Not surprisingly, investors reacted negatively to this news.
Royal Mail, like many other firms, has also been impacted by the current economic conditions. With the cost-of-living crisis, along with a potential UK recession, the business could expect to see a fall-off in demand in times ahead. Any sign of this would most likely mean a drop in the stock’s price.
Where next for Royal Mail?
However, while the firm faces issues, I do see positives with Royal Mail.
To start, the stock currently offers a substantial dividend yield of just over 6%. Given rising inflation, this seems like a smart way for me to create a passive income stream. Add this to the fact Royal Mail currently trades on a price-to-earnings ratio of just 4.52, and I think there’s value in the current share price.
I also like the moves the business has made regarding expansion. This is predominantly in the form of its International Global Logistics System (GLS) subsidiary. With 1,500 global depots, GLS provides Royal Mail with diversification. In theory, this could help boost the firm’s profits.
However, it does face other issues. The Communication Workers Union (CWU) is demanding pay rises for its members as the cost of living continues to spike. Current Royal Mail offers have not met the CWU’s expectations. And the Union has recently stated how it believes the firm “absolutely can afford a pay rise”. Should no solution be found, strikes may occur. This would no doubt harm the share price.
What I’m doing
So, will I be buying Royal Mail shares any time soon? I think the stock is cheap and it could prove to be a good addition to my portfolio. Yet the firm faces too many issues for me to be confident to bite the bullet. With a potential recession on the cards and inflation looking like it has no chance of slowing down soon, I think the stock is too risky. Add this to the potential issues the business may face with the CWU, and Royal Mail carries enough threats for me to be deterred from buying any shares.
