Royal Mail (IDS) share price surge faces headwinds

IDS (LON: IDS) share price continued its bullish comeback as the market cheered the latest union vote. Shares of Royal Mail’s parent company jumped to a high of 244p, the highest level since May 10th. In all, the stock has jumped by more than 27% from the lowest level in June.

Royal Mail is still at risk

IDS stock price continued its remarkable comeback after Royal Mail’s employees agreed to the payment agreement reached a few months ago. This is an important move that will see the company end become relatively stable after going through significant uncertainties in the past few months. 

As I wrote here, the agreement is favourable for both sides. Employees will receive a one off 500 pounds payment and a 10% increase in salary in the next three years. IDS will spend less money compared to what the workers were demanding. They wanted their wage increases to be pegged to inflation.

As part of the agreement, employees will also receive later starting times for deliveries and new seasonal working conditions. The immediate impact of this deal is that the company will narrow its losses since workers will work in line with their agreement.

Still, as I have written before, the biggest challenge for Royal Mail’s management is that the company is vastly overstaffed. It has over 115k workers, which is significantly higher than companies of its size. Therefore, the path to profitability is a bit narrow.

The other challenge is that Royal Mail’s key businesses are not growing as fast. Its letters business is slowing rapidly. And after peaking during the pandemic, e-commerce trends are moderating. Therefore, I believe that the current Royal Mail share price rally is a bit stretched.

IDS share price forecast

IDS chart by TradingView

Shares of the Royal Mail parent company have been rising in the past few months. The stock has jumped from 191.85p in May to a high of 245p. It has moved above the 25-day and 50-day moving averages. 

The stock has also moved above the ascending trendline that connects the lowest levels in October and April this year. The shares are a few points below the key resistance level at 255.7p, the highest point in April. 

Therefore, I suspect that the shares will find it difficult to move above this level in the near term. A move below the support at 240p will see it dropping to the key support at 200p.

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