Throwing a letter in a red British post box from the side
The Royal Mail share price collapse continued on Thursday as the stock struggled to find bids. The RMG stock declined to 428p, which was the lowest level since February this year. It has collapsed by more than 28% from its highest level this year.
There are several reasons why the Royal Mail share price has collapsed. First, investors are concerned about the company’s growth as the UK reopens its economy. A reopened economy could lead to less e-commerce. This, in turn, will affect the company’s parcel business, which did well during the Covid pandemic.
Second, Royal Mail relies on trucks for deliveries. Like all companies in the UK, the company is battling a driver shortage. The cost of employing drivers has also risen during the shortage. Therefore, the company could struggle to deliver in the coming days.
Third, the RMG stock price has tumbled because of the ongoing fuel shortage in the country. Many petrol stations have run dry and the cost of fuel too has risen. These costs, together with those associated with natural gas, will likely lead to a higher cost of doing business.
Fourth, the RMG share price declined sharply after analysts at UBS downgraded the company. They cited the rising operating costs as they downgraded it to sell. They said:
“We expect peak uncertainty around UK parcel volumes in Q4; and wage inflation ahead of the negotiations with CWU.”
The daily chart shows that the Royal Mail share price has collapsed in the past few months. Along the way, it has moved close to the 38.2% Fibonacci retracement level. Notably, the stock has moved below the 50-day and 200-day moving averages. The Relative Strength Index (RSI) has crashed to the oversold level.
Therefore, the RMG share price will likely maintain a bearish trend as bears target the next key support at 400p. This view will be invalidated if the price rises above 450p.