Down 50%, where do Royal Mail shares go from here?

This year has proved to be a torrid one for Royal Mail (LSE: RMG) shares. The stock has fallen a massive 50%. In the last 12 months, the Royal Mail share price is down 48%.

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.