After steep falls, are Royal Mail shares a steal?

Royal Mail shares have more than halved since peaking a year ago. After months of steep falls, this popular stock is in the doldrums, so is it time to buy?

| More on:
Happy young female stock-picker in a cafe

Image source: Getty Images

To date, 2022 has been a rough year for shareholders of universal postal services provider Royal Mail Group (LSE: RMG). Indeed, Royal Mail shares have shed 250p of their price so far this calendar year. What’s more, the stock hit a 52-week low just a week ago. So is Royal Mail a busted flush or ripe for recovery?

Royal Mail shares slide steeply

As I write on Wednesday afternoon, the Royal Mail share price stands at 270.5p. Almost a year ago, on
2 July 2021, the stock hit its 52-week high of 566.75p. In other words, it’s more than halved, down 52.3% from this peak. Yikes.

Here’s how the shares have performed over seven different timescales:

One day-3.8%
Five days-0.2%
One month-17.2%
Year to date-46.6%
Six months-47.7%
One year-52.9%
Five years-35.3%

As you can see, this popular and widely held stock has fallen over all seven periods, ranging from one week to five years. I imagine these brutal declines have left Royal Mail shareholders feeling frustrated and concerned, especially those who also work for the group.

In another blow to its market standing, Royal Mail has been ejected from the blue-chip FTSE 100 index. With effect from Monday 20 June, the stock was relegated to the mid-cap FTSE 250 index. But when I buy into a listed company, I buy its entire future and not its recent past. So how do I feel about Royal Mail shares today?

Royal Mail’s fundamentals are in the bargain basement

At the current share price, here are the company’s current fundamentals:

Share price270.5p
52-week low (22 June 2022)258.8p
52-week high (2 July 2021)566.75p
Market value£2.6bn
Price-to-earnings ratio4.4
Earnings yield22.5%
Dividend yield6.2%
Dividend cover3.6

Looking at these fundamentals, it seems to me that Royal Mail stock is practically priced for a major crisis. Its earnings yield of 22.5% is more than four times the FTSE 100’s earnings yield of 5.9%. But this is a trailing (backward-looking) measure — and the company is likely to face tougher times in 2022/23 than in 2021.

What’s more, the group’s dividend yield of 6.2% a year looks very attractive to me, as a veteran value investor always on the lookout for more passive income. This is nearly 1.6 times the Footsie’s cash yield of 3.9% a year, which I like the look of.

We’re buying while stocks last!

I worry about lots of issues at the moment, both national and global. Soaring consumer prices (notably oil and fuel) has fuelled red-hot inflation, causing a cost-of-living crisis. Interest rates are rising, making personal and corporate borrowing more expensive. Global growth is slowing, the risk of recession is rising, and there’s war in Ukraine.

Even so, I think all of these downsides are probably baked into the Royal Mail share price right now. For me, the shares are just too cheap today. That’s why I’ve asked my wife (who administers our family portfolio, because I hate admin) to buy Royal Mail shares ASAP. Of course, they may get even cheaper if the usual summer slump in share prices arrives — in which case, we’ll buy even more!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Mixed-race female couple enjoying themselves on a walk
Investing Articles

UK shares: 1 burgeoning tech stock to buy for returns and long-term growth!

Jabran Khan is looking for the best UK shares to buy for his holdings that provide excellent returns and growth…

Read more »

Black father holding daughter in a field of cows
Investing Articles

2 FTSE 100 shares I’d buy for lifelong passive income!

These FTSE 100 shares have proved to be excellent dividend stocks for many years. Here's why I think they'll continue…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

1 cheap penny stock that boosts passive income and has great growth prospects!

This Fool likes this penny stock that currently looks good value for money, has an enticing dividend yield, and growth…

Read more »

Sun setting over a traditional British neighbourhood.
Investing Articles

Will the Taylor Wimpey share price rebound soon?

The Taylor Wimpey share price has jumped 10% since it bottomed last month. But will it continue its rally and…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Should I buy this growth stock at £10?

The ASOS share price has tumbled to its lowest price in the last 10 years. Surely at £10 per share,…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

Is the bear market in stocks over? I fear not!

After the worst first-half bear market in 52 years, US stocks have rebounded in the past month. But what should…

Read more »

Happy male couple looking at a laptop screen together
Investing Articles

Is this FTSE 250 stock one of the best to buy for consistent growth and returns?

Jabran Khan takes a look at whether this FTSE 250 tech stock could be a good addition to his portfolio…

Read more »

Girl and father putting coin into piggy bank, sitting on sofa at home
Investing Articles

Here’s why I’d buy Legal & General shares to bag 7.5% dividends today

Legal & General shares are picking up, as the company reaches the halfway stage in its five-year cash and dividend…

Read more »