Time to Buy the Dip?

The strong Royal Mail share price rally has faded recently. The RMG share price is trading at 500p, which is about 6% below the year-to-date high of 530p. Still, the stock is almost 50% higher than where it started the year. 

What happened: Royal Mail has been one of the key beneficiaries of the coronavirus pandemic. With more people staying at home, the company has benefited because of the rising demand for parcels. Indeed, the demand for its services is so high that the firm has hired more people and expanded the number of days it delivers. 

Recently, it announced that it would introduce a Sunday delivery slot. All this has led to higher revenue. The firm expects to double its profit to more than 700 million pounds for the year that ended in March. It will deliver the full-year results on May 20. Further, its shareholders are expected to receive a dividend for the first time since January last year. 

Still, the firm is facing significant competition, especially in its parcel business, especially from Hermes. Indeed, it recently announced that it would start picking parcels for free. Also, there are concerns about whether the performance will continue as the UK economy reopens. Recently, an analyst told The Guardian:

“Challenges remain, however, and the group will need to be alert. Competition is particularly fierce in the parcels business and it is not yet clear whether the current volumes are at a temporary peak as customers have been driven to online shopping from their homes during the pandemic.”

Royal Mail share price forecast

The weekly chart shows that the RMG share price has had an excellent recovery. It has rallied by more than 300% from its lowest level in 2020. Also, the shares are trying to reach the all-time high of 633p. The upward trend is being supported by the short and longer term moving averages. It is also forming a cup and handle pattern. 

Therefore, in the longer term, I believe that the shares will rise and retest the all-time high at 633p, which is about 25% above the current level. However, a move below 400p will invalidate this trend. 

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RMG share price chart

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