I was astonished to discover the identity of the most popular UK stock. I would have guessed Lloyds Banking Group or Rolls-Royce, judging by the interest these two generate among Fool users, but no.

Royal Mail (LSE: RMG) is today’s number one UK stock, according to a new study by CMC markets. It analysed Google searches to find the companies with the most popular shares, and Royal Mail was top with an average of 166,100 searches a month.

Is this really our favourite UK stock?

That puts it well ahead of second-placed Tesco, with 61,600 views, and third-placed Tesla at 42,000. FTSE 100 favourites Lloyds, Rolls-Royce and BT Group were even further behind, generating a little over 30,000 monthly views each.

So why Royal Mail? Shares in the parcels, letters and stamps giant are down 50% in the last 12 months. Measured over five years, the FTSE 250 group is down 33%. 

CMC didn’t give a reason, so I’m guessing it is has something to do with Czech billionaire Daniel Kretinsky, who is looking to increase his 22% stake in the company. He is already Royal Mail’s biggest shareholder and the government is investigating his intentions under the National Security and Investment Act.

Takeover talk often boosts a company’s share price, although there is little evidence of that happening with Royal Mail.

Management’s long-running dispute with the Communication Workers Union has triggered a summer of discontent, with two strikes in August, with another two on Thursday and Friday. Around 115,000 of its 180,000 workforce will take part. That will hit services and revenues, and tempt disillusioned customers to use competitors.

Royal Mail keeps failing to deliver

That’s a blow, given that the company’s operating margins are already thin at 4.5%, and forecast to narrow further to just 1.5%. Any pay rises will squeeze them even further. Unions are also resisting changes to working practices, making it harder for management to force through the operational change it needs to please customers and boost the bottom line.

Royal Mail’s market-cap has shrunk to £2.5bn, while its net debt is nearing £1bn. That will prove even more burdensome as interest rates rise, which will push up servicing costs. The good news is that its GLS division is doing well and should deliver operating profits of between €370m and €410m in 2022/23.

Perhaps investors are Googling the company because they want to find more about its generous dividend income stream. It is currently forecast to yield a thumping 7.7%, which offers some inflation mitigation. That certainly tempts me. Every balanced portfolio needs a few dividend heroes to keep them ticking over during volatile times. Royal Mail has fulfilled that role ever since it was privatised in 2013.

However, even that silver lining has a cloud, as dividend cover is set to fall to just 0.7. I wonder how sustainable this dividend will prove if the group’s problems persist.

So I’m baffled why investors are searching out Royal Mail in such great numbers. I certainly can’t see many reasons to buy this troubled stock today.

The post The UK’s ‘most popular stock’ is down 50% in a year. I still wouldn’t buy it appeared first on The Motley Fool UK.

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Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has recommended Lloyds Banking Group, Tesco, and Tesla. 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.

It’s been a rocky road for Royal Mail (LSE: RMG) so far in 2022. Having fallen over 50% year to date, the stock currently sits at just 259p. This fall in share price movement and subsequent shrinking of its market cap pushed the company out of the FTSE 100 index in June this year. Broadening the horizon to a 12-month span, the shares have tanked 47%. So, with this in mind, is now the time to buy the shares? Or should I avoid adding this FTSE 250 UK courier to my portfolio?

Union action

One of the most pressing issues plaguing the group is the threat of strike action. Royal Mail has been in a long dispute with the Communication Workers Union (CWU) over pay. With no firm agreement reached, it was announced that Royal Mail workers would strike for four days in the next few weeks.

The strikes come after months of red-hot inflation, which most recently hit 10.1% in the UK in July. Rising prices are vastly outpacing wages and magnifying the cost-of-living crisis. It’s estimated that 115,000 workers will partake in the strike action, which will place momentous pressure on Royal Mail’s operations.

Disruption to operations is a short-term issue, but I still expect a big impact on the firm’s revenues. However, over the long term, it places even more pressure on the group to reform pay packages. Royal Mail currently employs around 180,000 staff. Even a small increase in wages would add millions in operating costs. The courier operates with slim 5% profit margins, so higher wage costs for it are a big issue.

Interest rate pressure

With inflation and interest rates on the rise, it has created a far from favourable market environment for Royal Mail. The group has high debts, low cash flow, and is loss-making. This makes it a pretty risky investment. As rates rise, people turn away from speculative assets like risky stocks and pour their money into safer ones. As rates continue to rise, this could put additional pressure on Royal Mail shares. Also, with over £900m net debts on its balance sheet, and those thin margins, rising rates are something the group simply cannot afford.  

A bargain buy?

One positive I see for Royal Mail shares is their cheap valuation. Currently trading on a price-to-earnings ratio of just 4, the stock looks astonishingly cheap – especially considering the FTSE 100 average P/E ratio of 14. In addition to this, it packs a meaty 6.4% dividend yield, which could be great for adding passive income to my portfolio and acting as an inflation hedge.

Yet while the shares are cheap and the dividend is high, there are too many red flags for me to buy this stock. Strike action poses a big threat to the firm’s income, as well as potentially forcing it to vastly increase its expenditure. Inflation and interest rates pose a similar threat. For those reasons, I won’t be buying any Royal Mail shares today.

The post Should I snap up Royal Mail shares at 259p? appeared first on The Motley Fool UK.

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Dylan Hood 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.

This year has been bleak for the Royal Mail (LSE: RMG) share price. So far, the stock is down 50%. Over the last 12 months, shares in the FTSE 250 courier have plummeted 47%.

So, where will the Royal Mail share price go next? And with this fall, should I be rushing to snap up some cheap shares? Let’s take a look.

Workers walk out

Arguably the most pressing challenge Royal Mail faces in the near future is strike action. After a long set of negotiations, it was recently announced that the company’s workers, represented by the Communication Workers Union (CWU), would strike for four days in the coming weeks.

The action follows calls from staff for wage increases more closely aligned to inflation rates, which recently hit 10% in the UK. And with both parties failing to agree on terms they deem suitable, 115,000 workers will perform walkouts. The first of these will occur this coming Friday.

I see this situation going one of two ways – both of which cause problems for Royal Mail.

Firstly, in the short term, a strike of this magnitude will severely impact the efficiency of Royal Mail’s services, in turn, weighing down revenues. While the business has assured plans are in place to mitigate the staff reduction, I’d expect the strike to bear down heavily on the firm.

On the other hand, while unions are healthy and should be encouraged to create fair working conditions, should Royal Mail succumb to the CWU’s demands this will mean a major rise in labour costs for the firm. With the union’s demands totalling a potential £1bn, this could have a negative impact on Royal Mail in the long run.

Not all down and out

So, the ongoing dispute with workers could be a persistent issue for Royal Mail. Yet despite this, there are a few things that draw me to the stock.

One major pull is its meaty dividend yield. With inflation continuing its surge and rates predicted to peak at 13% this year, cash in the bank is losing more value every day. With a yield of 6.2%, this passive income stream would help me in part beat off inflationary issues.

On top of this, the stock also looks incredibly cheap with a price-to-earnings ratio of just 4.3.

However, a concern for me is its debt. As inflation spikes, interest rates will be hiked. And with its debt sitting at around £900m as of March, Royal Mail may struggle to eradicate this. Where Royal Mail has looked to modernise in recent times, such as through its new coded stamps, this debt may hold it back.

Where next?

So, where next? And should I be buying cheap shares?

Well, I won’t be buying today. The stock is attractive with its low valuation and high dividend, but with the challenges that it faces in the months ahead, I can see the stock sliding further this year. I’ll be avoiding Royal Mail for now.

The post The Royal Mail share price is down 50%. Where will it go next? appeared first on The Motley Fool UK.

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Charlie Keough 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.

So, where does Royal Mail go from here? With the outlook for the rest of the year looking bleak, does this fall open an opportunity to grab some shares? Or should I be avoiding the stock for now?

Workers take action

After what has been a long and painful battle, yesterday finally saw Royal Mail workers take action as it was announced they would strike for four days in the coming weeks. Represented by the Communication Workers Union (CWU), staff have been pushing for a pay rise to offset the impact of the rising cost of living.

Last month the matter was taken to a ballot vote, where 97.6% of members of a 77% turnout opted in favour of the walkout. With 115,000 staff forming the strike, their demand is to receive a “dignified, proper pay rise.”

The release of the announcement saw the Royal Mail share price pegged back slightly. And this sort of situation doesn’t bode well for the FTSE 250 constituent as we could see further issues down the line should the two parties fail to find a resolution.

What could also be of concern to the firm is its large debt. As of March, this stood at around the £900m mark. What worsens this is rising interest rates. And with rates in the UK recently being hiked by 50 basis points to 1.75%, this will only make it more difficult for the business to service or pay off this debt.

GLS provides hope

Despite this, it’s not all down and out for Royal Mail.

Firstly, its latest results highlighted the strength of its international subsidiary GLS. For the first quarter, the business posted a £94m operating profit. On top of this, it also had a strong outlook for the year, on track for single-digit revenue growth. While the results were largely disappointing, GLS provides a beacon of hope for Royal Mail.

The stock also looks attractive with its substantial 6.4% dividend yield. As red-hot inflation continues to diminish the value of cash, this passive income stream could be a smart play.

However, I do doubt the stability of these dividend payments. Its debt gives it little scope. And with forecasts for its performance this year looking weak, the business may be forced to prioritise other aspects of its operations.

I’m not buying

So, despite the massive discount, I won’t be buying Royal Mail shares today. I do see positives with the stock. And its dividend yield in these times seems attractive. But given the outlook for the year, I think the business will struggle to turn its fortunes around. I can see the stock falling further this year. And its battle with the CWU certainly won’t help. Therefore, I’m steering clear. 

The post Down 50%, where do Royal Mail shares go from here? appeared first on The Motley Fool UK.

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Charlie Keough 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.

Director dealings are essentially insider transactions for shares between directors and the companies they work for. These dealings are always made public, and are often considered a good indicator of a company’s future prospects. However, they don’t get nearly as much attention as other company news due to their complex nature. Nonetheless, here I’m breaking down this week’s biggest director dealings from three FTSE firms.

Aviva

Aviva (LSE: AV) is a British multinational insurance company. It has millions of customers across its core markets. Aviva is also the UK’s largest general insurer. This week, an influential director purchased shares through the firm’s Global Matching Share Plan.

• Name: Jason Storah
• Position of director: Chief Executive Director
• Nature of transaction: Partnership shares and matching shares
• Date of transaction: 15 July 2022
• Amount bought: 38.413602 @ £3.93
• Amount received: 76.827204 @ £3.93
• Total value: £452.70

Royal Mail

Royal Mail (LSE: RMG) is Britain’s biggest postal service and courier company. The group runs the brands Royal Mail and GLS. It released its Q1 trading update this week. Two director dealings also occurred.

• Name: Mick Jeavons
• Position of director: Chief Financial Officer
• Nature of transaction: Free shares (Deferred Share Bonus Plan 2019)
• Date of transaction: 18 July 2022
• Amount bought: 14,132 @ nil
• Total value: £N/A

• Name: Katherine Amsden
• Position of director: PCA of Mark Amsden, Group General Counsel and Company Secretary
• Nature of transaction: Purchase of shares
• Date of transaction: 21 July 2022
• Amount bought: 34,262 @ £2.92
• Total value: £99,977.21

Deliveroo

Deliveroo (LSE: ROO) is a British online food delivery company. It operates in over 200 locations across the UK and internationally. In the UK, it is the second-biggest food delivery platform. In this week’s transaction, a director exercised their option to redeem stock compensation.

• Name: Adam Miller
• Position of director: Chief Financial Officer
• Nature of transaction: Free shares
• Date of transaction: 15 July 2022
• Amount received: 83,400 @ £0.85
• Total value: £70,973.40

• Name: Adam Miller
• Position of director: Chief Financial Officer
• Nature of transaction: Sales of shares to cover tax liabilities
• Date of transaction: 15 July 2022
• Amount sold: 40,407 @ £0.85
• Total value: £34,345.95

Types of shares in a SIP

To provide context, there are a few types of shares within a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to flexibly award equity to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this week’s director dealings, Aviva’s CEO opted to purchase partnership shares. Partnership shares give employees the opportunity to buy shares via deductions from their salary, before tax deductions. But where partnership shares are offered, the company can also offer matching shares. This can range up to a maximum ratio of two free matching shares per partnership share purchased, as was the case. That being said, it’s important to note that matching shares must normally be held in a trust for at least three years, and held for five years in order to receive full tax relief. However, these shares may be forfeited if an employee withdraws their partnership shares from the trust.

On the other hand, the Royal Mail CFO received free shares. This occurred under the company’s Deferred Share Bonus Plan from 2019. Having said that, the director is expected to retain their share-based awards until they achieve an equivalent of 200% of their salary.

As for Deliveroo’s CFO, he received free shares. These are a form of restrictive stock units (RSU). RSUs are a form of stock compensation. It is a promise from the company to award a company’s shares in the future. RSUs are most often used in younger companies. This is because cash on its balance sheet is used to grow the business instead.

The post Director dealings: Aviva, Royal Mail, Deliveroo appeared first on The Motley Fool UK.

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John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Deliveroo Holdings Plc. 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.

Seeing red

Once a pandemic darling, the tailwinds that brought the Royal Mail share price close to its all-time high have now dissipated. As such, the group saw a tremendous slowdown in revenue growth in the past year. A 0.6% increase in total revenue wasn’t enough to please investors as operating profit, basic earnings per share (EPS), and free cash flow, all saw declines.

Additionally, management mentioned an uncertain outlook for the year ahead. The board cited wage inflation, sharp increases in energy and fuel costs, low GDP growth, and the downturn in consumer spending to create significant headwinds for the year ahead. To make matters worse, the FTSE 250 firm is still in dispute with its workers over its latest pay round, with threats of strike action.

Royal rebound on the cards?

Taking all those factors into account, analysts have revised their FY23 earnings for the firm downwards. Expected EPS now stands at 44.8p, with revenue for the year at £12.69bn. But if Royal Mail can provide a positive trading update tomorrow with upbeat guidance, a potential rebound could be on the cards.

Admittedly, stalling retail sales data in the past quarter doesn’t bode well for Royal Mail shares. However, there are glimmers of hope that the firm may not be as badly affected as initially thought. A recent report by the Office for National Statistics provided a couple of positive takeaways.

Generally, the public is buying less food, putting off delayable spending and is less like to spend money going out. However, spending on hobbies and home improvements has gone up, with people sticking with online shopping. Shopping and spending habits may be ‘incredibly positive’ for the consumer. Online purchases have been consistently above pre-pandemic levels since October 2020.

Source: Office for National Statistics

To complement this, the latest results from packaging company DS Smith were encouraging too. Revenues were up 21% on an annual basis, with management attributing the improvement to higher demand for cardboard boxes, like those Royal Mail often delivers. Even though DS Smith’s results may not have a direct correlation, it does show that packages are still in high demand. And I’d assume that Royal Mail would benefit to some extent from delivering such parcels.

Can it deliver?

Taking everything into consideration, would I still buy Royal Mail shares before its earnings results? Well, despite the potential swing of the pendulum in its share price, there are still a couple of caveats I can’t look past.

For one, labour strikes are still very much a possibility despite unions suspending strikes for the time being. Talks could come to an unwanted conclusion, and would massively impact the company’s business operations. Moreover, with inflation getting higher, it’s becoming more likely that consumer discretionary spending continues to decrease. And while the group’s GLS division has been boasting consistent and steady growth, I’m doubtful that this can pull the entire company’s weight for the long term. Therefore, I won’t be buying Royal Mail shares until we see a more certain economic landscape.

The post Should I buy Royal Mail shares before its earnings results? appeared first on The Motley Fool UK.

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John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended DS Smith. 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.

Earnings results are a great way for investors to judge a company. They’re used to determine whether companies are on track with their initial guidance. These results can often radically move share prices in either direction, depending on the numbers reported. So, here’s an earnings preview for three FTSE firms reporting results this week.

It’s always best to compare firms’ new quarterly/half-year numbers to those from prior years. But certain revenue figures may have been impacted by the pandemic, so it’s important to get context from pre-pandemic levels too. The new figures that are due can also be useful to determine whether a company can perform better than its previous year’s numbers, or if it can beat analysts’ annual forecasts. It’s a shame that analysts in the UK don’t normally publish earnings previews for quarterly or half-year periods.

Royal Mail (Q1 trading update)

Royal Mail (LSE: RMG) is Britain’s biggest postal service and courier company. The group runs the brands Royal Mail and GLS (an international logistics company). The FTSE 250 firm is expected to provide a trading update for its most recent Q1 performance ending June 2022 on Wednesday 20 July. The company’s financial year ends in March 2023.

Analysts covering Royal Mail are predicting a slowdown in both its top and bottom lines for the current financial year. The board painted a gloomy picture for the group in its Q4 earnings call, which sent the share price crashing. Lockdown tailwinds have dissipated, and the logistics group is locked in discussions with staff over its latest pay round, with the threat of possible strike action. Pair that with a slowing British economy and high fuel costs, and it seems to me that the only way for its share price to go is down. Making matters worse, EPS for its current year has seen a steady decline from £0.54 to £0.45 over the last 90 days. Nonetheless, if revenue figures come in above 2020 levels, there could be a surprise rally.

Howden Joinery (H1 earnings)

Howden Joinery (LSE: HWDN) is the UK’s number one trade kitchen supplier. It provides thousands of products across kitchens, joinery, and hardware. The FTSE 100 firm is expected to post its half-year earnings for its six months performance ending June on 21 July. The company’s financial year ends in December 2022.

The overall consensus is that Howden Joinery is expected to continue growing its top and bottom lines. Analysts have also revised their EPS targets for the current year upwards, by nearly £0.01 in the last 90 days. That being said, investors will be paying attention to the guidance provided on Thursday in order to determine whether the supplier can beat its previous year’s record figures.

Dunelm (Q4 trading update)

Dunelm (LSE: DNLM) is a British home furnishings retailer that operates throughout the UK. It’s one of the largest homewares retailers in the country with an ever growing market share. The FTSE 250 firm will be posting its Q4 trading update for the period ending June 2022 on Thursday 21 July. The company’s financial year ends in June 2022.

While public listed companies normally release their full year results along with their Q4 numbers, Dunelm will only report its FY earnings on 14 September. This is most likely due to its financial year only ending three weeks ago. Therefore, the trading update will be more akin to an earnings preview.

Having said that, the revenue figure will be watched closely as specific bottom line figures will only be released in September. Comments from the board will also be closely monitored as investors look to determine whether EPS estimates will be met. Nevertheless, analysts have revised their EPS targets from £0.79 to £0.80 in the last 90 days. Despite that, a slowdown in retail sales in the last quarter should be kept in mind. It may have impacted Dunelm’s top line figure, along with higher fuel and labour costs. These macroeconomic factors could see analysts’ EPS being revised lower, if management hints at lower margins in the trading update.

The post Earnings preview: Royal Mail, Howden Joinery, Dunelm appeared first on The Motley Fool UK.

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John Choong owns shares of Dunelm. The Motley Fool UK has recommended Howden Joinery Group. 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.

A great value stock

The low P/E ratio of Royal Mail does attract me. For a start, it’s well below the ‘value’ level of 10, and miles below the FTSE 100 average of 14. In addition to this, it’s far below competitors UPS and FedEx, which trade on P/E ratios of 14 and 16 respectively. All of this signifies that Royal Mail shares could be vastly undervalued at their current price.

In addition to the low price, the current dividend yields a healthy 6.2%. City analysts expect this number to creep up towards the 10% mark over the next few years as the courier raises its payouts. Therefore, a Royal Mail position could help me add some passive income to my portfolio – something I’m looking to do to keep up with rising inflation.

Why I’m wary

There are risks though. For starters, the state of the UK economy is a big threat to Royal Mail. Interest rates are being hiked to counter red hot inflation and eventually, this is going to slow economic growth. This could translate into less demand for parcels, which is bad news for Royal Mail.

Inflation itself is leading to ballooning costs for the firm too. Last year, transport made up 29% of the group’s costs. With oil prices through the roof, operating expenditure could swell to dangerous levels. With over £2bn of debt on the balance sheet, this is something the courier can’t afford.

In addition to this, the firm is facing huge industrial action issues. The cost of living crisis means workers want larger pay rises. The company has already proposed a 5.5% wage rise, which was recently rejected by workers. Such a rise would push the total wage bill up by over £250m, so the prospect of anything higher than this is pretty dire for Royal Mail. However, if nothing is done, then workers will strike, and the stock will tank. Both choices present pretty bleak situations for it.

Finally, competition in the parcel delivery space is heating up. Overseas giants like DHL are pouring millions into expansion, with DHL announcing plans to create 3,500 new jobs in the UK.

Would I buy?

It’s no secret that Royal Mail shares are cheap and offer a great dividend. However, I think the low share price reflects the tough outlook for the firm. Industrial action and the state of the macroeconomy are pitted against it, and I think these obstacles are going to be hard to overcome. As such, I won’t be adding the stock to my portfolio any time soon.

The post Royal Mail shares are down 48%: should I buy now? appeared first on The Motley Fool UK.

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Dylan Hoo 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.

The Royal Mail (LSE:RMG) share price is down over 50% in the last year. The company has been challenged with rising inflation and lower delivery demand. Alongside this, the stock has now been relegated from the FTSE 100 index. 

I question if the share price is set to recover. And is now the perfect time for me to invest to ride the rebound? 

Current challenges for Royal Mail

During the pandemic, a rise in parcel deliveries was a lifeline for the company. However, as restrictions eased, the dependence on parcel deliveries slowly evaporated. Domestic parcel volume has already dropped 7% year on year. 

Royal Mail is also highly exposed to rising inflation. Last year, personnel made up 55% of operating costs, and distribution and transportation made up 29.3%. With rising fuel costs and demands for higher wages, I would be surprised if operating costs didn’t rise over the next year. 

On Tuesday, the Communications Workers Union (CWU) ran a ballot on whether to take industrial action. If this was to happen, Royal Mail would face service disruption and may be forced to take on a higher wage bill. This would lower profit margins and hurt the Royal Mail share price. We will have to wait until 19 July for the result. 

Attractive fundamentals? 

It is not all doom and gloom for Royal Mail shares. The company is currently trading with a price-to-earnings ratio of 4.6, which is considerably lower than the current FTSE 250 average of 15. If Royal Mail’s earnings halved and the share price remained the same, the stock would still have a P/E ratio under 10. 

It is worth noting that, despite my future concerns, the current accounts for the last financial year remain relatively strong. Profit only fell 1.3% and revenues rose 0.5%. While this is nothing to write home about, it shows the majority of my concerns have yet to be financially realised. 

Alongside this, Royal Mail shares currently have a solid dividend yield of just under 6%. Forecasts are suggesting this will rise above 8% in the coming years. The dividend also looks relatively stable, with only 32% of earnings being paid out as dividends. This being said, I would like to see earnings growth first before any further rise in the dividend payout. 

What am I doing? 

On the surface, I can see how the Royal Mail share price looks attractive. The low P/E ratio, the high and growing dividend and the considerable drop in value are all encouraging signs to me. However, I believe there are currently too many uncertain challenges facing the company for the share price to bounce back. Industrial action, rising fuel costs and lower parcel demand all cloud Royal Mail’s future. I’m holding off for the foreseeable future. 

The post Down 50%, will the Royal Mail share price bounce back? appeared first on The Motley Fool UK.

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Finlay Blair 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.

Royal Mail (LSE: RMG) shares have had a terrible 2022. Down over 45% year-to-date, this poor performance has seen the stock demoted from the FTSE 100. Five years ago, the courier business was trading for over 400p. However, today the stock is sitting just above the 280p mark.

So, does this fall present an opportunity for me to snap up some cheap Royal Mail shares today? Let’s take a look.

Why is Royal Mail down?

Royal Mail’s downfall can be largely pinned to the poor results the firm has posted in recent times. The company experienced a boom in business during the pandemic as Covid-driven online shopping fuelled demand. However, with the easing of restrictions, the business has suffered. A reduction in activity, as a result, has seen Royal Mail miss multiple analysts’ targets. Investors have reacted negatively to this, in turn pushing down the stock’s price.

The current macroeconomic environment has also impacted the firm. With inflation on the rise and a potential recession around the corner, demand will most likely slow in the months ahead. Should this occur, there would be an increased likelihood of a fall in the share price.

Wider factors

Despite this, I do see value in the current share price.

The major attraction to me is the stock’s meaty dividend yield. Royal Mail currently offers a yield of nearly 6%. And with inflation continuing to rise, this would offer me a passive income stream, helping to partially hedge against rising rates. What I further like about the stock is its low valuation. With a current price-to-earnings ratio of 4.55, these are two tempting factors when considering adding Royal Mail to my portfolio.

However, the business is currently embroiled in a dispute with the Communication Workers Union (CWU) regarding pay rises. With the cost-of-living crisis, the CWU has demanded that Royal Mail pays its workers more than their current rates. With all offers to date having been rejected, more than 115,000 workers will vote in the weeks ahead on whether to take industrial action. Should this occur, I’d expect this to reflect negatively on the Royal Mail share price.

The business also finds itself with a large amount of debt. This currently sits at £985m, according to its full-year results for the 2022 fiscal year. To add to this, its cash balance also fell by 50%. Combined, these factors could mean Royal Mail facing trouble in the future.

Is Royal Mail a buy for me?

The shares do look cheap. And the near-6% dividend yield is a tempting factor for me when considering whether to buy the stock today. However, I think the firm will struggle to overcome its challenges in the months ahead. Its large debt is a concern. And another issue comes in the form of its dispute with the CWU. Should Royal Mail be able to successfully navigate this, I would potentially consider investing. But for the time being, I won’t be buying the shares today.

The post Are Royal Mail shares a buy today? appeared first on The Motley Fool UK.

More reading

• Here’s how much to put in your ISA if you hope for passive income of £21,000
• Here’s how someone could start buying shares for the price of a weekend break
• 2 top growth shares to consider on the London Stock Exchange
• £20k invested in a Stocks and Shares ISA this time last year is now worth…
• While everyone’s piling into AI infrastructure stocks like Micron and SanDisk, consider these out-of-favour Nasdaq 100 names

Charlie Keough 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.