The Royal Mail (LON: RMG) share price jumped sharply on Thursday after the company announced plans to boost its stock. The shares, which have been ranging recently, rose by more than 9% to 480p, which was the highest level since September 28.
Shareholder returns
The Royal Mail share price has struggled in the past few months. The stock has declined by more than 22% from its highest level this year.
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The reason for this decline is well known. Analysts are concerned about the growth prospects as the UK economy reopens. This is because as this reopening happens, fewer people will use online shopping. As you recall, Royal Mail was one of the top beneficiaries of the pandemic.
At the same time, investors are concerned about the company’s letter business, which has been slipping in the past few weeks. And recently, they have been worried about the rising cost of doing business as wages and energy costs rise.
Therefore, Royal Mail caught investors by surprise when it announced that it will return 400 million pounds to investors as its profits jumped. The company that its gross profits for the year will be in excess of 500 million pounds. This will be a substantial increase from the 344 million pounds it generated last year.
The company has been evolving. In October, the firm announced that it would acquire Roseneau International, a logistics company with operations in Canada. This acquisition will be in the company’s GLS division and will help the firm diversify its income.
Analysts are generally bullish about the Royal Mail share price. According to Marketbeat, the average share price among analysts is that the stock will rise to 596p. Some of the analysts bullish on the stock are from Peel Hunt, Goldman Sachs, and Berenberg.
Royal Mail share price analysis
On the daily chart, we see that the RMG share price has been in a tight range in the past few weeks. This performance has signalled that the stock has found a strong support recently. The shares moved slightly above the 25-day moving average.
However, a closer look shows that the stock has formed a bearish flag pattern. This pattern is usually a bearish sign. Therefore, while the shareholder returns news were welcome, there is a likelihood that the stock will resume the bearish trend in the near term. This price action is known as a dead cat bounce.
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