IDS, Royal Mail’s parent company, has seen its share price stagnate as concern about the company’s future remains. The stock has moved into a deep slumber at around 240p, which is a few points above last year’s low of 175p.
Royal Mail’s challenges are well-known. The company has seen its demand crash after soaring during the pandemic. Its most recent results showed that its total revenue dropped by 12% in the nine months to December last year. After generating strong profits during the pandemic, IDS generated an operating loss of over 295 million pounds.
Royal Mail has a bloated workforce of over 179k people. In 2021, the company had over 177 million workers. This is too much considering that Microsoft, a $2 trillion company has about 200k employees globally while Apple has 137k workers.
Most of these employees have been striking arguing that they need better wages. By striking even during the busy Christmas season, the employees helped push the company deep into the red. The management placed the operating loss due to these strikes to be between 350 million pounds and 450 million pounds.
Further, as the company was dealing with the crisis, it was hit by a major cyberattack that disrupted most of its international business. Royal Mail, like the US Postal Service, exists in a challenging policy environment that demands it to send letters almost daily and in unprofitable places.
Therefore, as it stands, it is difficult to recommend IDS as a good investment. Indeed, in this article that I wrote in December, I warned that the company had higher chances of going bankrupt. This explains why it has one of the highest short-interest in the UK.
IDS can only become a good investment if it is given the mandate by the government to operate as an independent company. The management needs to prioritize parcels instead of letters without any fear of government intervention.
Also, while this is difficult, the management needs to work hard to reduce the overall costs, including reducing its workforce.
Royal Mail stock chart by TradingView
On the daily chart, we see that the IDS stock price has formed a symmetrical triangle pattern that is shown in green. This triangle is approaching its confluence point, which happens ahead of a major breakout. It is also happening slightly below the psychological level of 250p.
The stock is also oscillating at the 25-day and 50-day moving averages. Therefore, we could see a major breakout or breakdown in the coming days. A convincing move above 245p will see it rally to the next resistance at 255p. A drop below the lower side of the triangle will see it crash below 200p.
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