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This calendar year has been pretty hard on shareholders of Royal Mail Group (LSE: RMG), whose stock has declined steeply in 2022. Indeed, Royal Mail shares have lost almost half of their value since 31 December. So are they a busted flush or a bargain buy today?
Royal Mail shares slump
As I write, the Royal Mail share price stands at 272.1p, down 6.9p (-2.5%) at the start of this week. After repeated weekly falls, here’s how these shares have performed over seven different timescales:
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| One day | -2.5% |
| Five days | -12.3% |
| One month | -19.5% |
| Year to date | -46.1% |
| Six months | -43.9% |
| One year | -53.7% |
| Five years | -38.8% |
As you can see, the shares have declined over all seven time periods, losing almost a fifth of their value in one month and more than half over the past 12 months. In other words, owning Royal Mail stock has been brutal for much of the past five years.
But I know that buying shares today means buying a company’s future and not its previous share-price performance. I don’t own Royal Mail stock today, but would I buy now, following recent price slumps?
Falling prices mean higher yields
At the current price level of 272.1p, here’s how Royal Mail’s share fundamentals stack up currently:
| Share price | Market value | P/E* | Earnings yield | Dividend yield | Dividend cover |
| 272.1p | £2.6bn | 4.4 | 22.6% | 6.1% | 3.7 |
Following its price plunges, the whole of this postal-services provider is worth just £2.6bn today. This has pushed the company’s earnings yield close to 23%, versus around 6% for the FTSE 100 index. (Royal Mail will soon be relegated from the blue-chip Footsie to the mid-cap FTSE 250 index.)
What more, these price declines have lifted the group’s dividend yield above 6%. This takes it to at least 1.6 times the Footsie’s cash yield of under 4% a year. Even better, this cash payout is covered 3.7 times by earnings, suggesting that it is both solid and has scope to rise.
RMG looks like a bargain to me
Now for the bad news: these are trailing figures and, like many UK companies, 2022 is much tougher than 2021 for Royal Mail. Like many businesses, the firm faces headwinds including red-hot inflation (rising consumer prices), supply-chain shortages, falling economic growth, and possible strike action.
Even so, I think much of this anxiety is already reflected in the currently depressed share price. It stands just 3.9p above its 52-week low of 268.2p, hit on Monday. Also, it’s a long, long way from the 600.2p high it stood at around year ago.
To sum up, I’d be gutted if I’d bought into Royal Mail shares 12 months ago at £6 or so. But I’d gladly buy this cheap share at current price levels. Then I’d hold on tight, banking the regular dividend income while awaiting potential price gains!
