Following its recent share price fall, Royal Mail PLC (LON:RMG) (RMG.L) now has a P/E ratio of around 8. In my view, that suggests the stock is relatively cheap, since I’m struggling to find too many FTSE 100 shares with such low valuations.
Of course, the business faces a risky outlook in my opinion. Its strategy does not seem to be working as well as planned, with cost avoidance and efficiency gains being less than previously expected. As a result, its EPS is forecast to fall by 14% this year, which investors appear to have priced in following its recent stock price slump.
Royal Mail is due to put in place a revised strategy in future months under its new CEO. This could catalyse investor sentiment in my view, although it may also cause a period of instability and volatility.
However, it is the potential for international growth and its parcel delivery services which makes me positive about its long-term outlook. The company could benefit from a tailwind in parcel delivery as consumers continue to move towards online shopping and away from bricks-and-mortar shops. This could increase demand for the company’s services, with volumes having generally been positive in this area in recent quarters.
Alongside this, Royal Mail’s share price may also be catalysed by its international performance. It is investing heavily in its GLS subsidiary which has been able to post relatively high sales figures in recent quarters. That trend could continue and as it becomes a larger part of the business over time, it may have a bigger impact on its overall performance.
Therefore, while the near-term prospects for the business may be challenging and a further share price fall could be ahead, I remain optimistic about the company’s long-term recovery potential. It could offer value investing prospects versus the wider FTSE 100 in my eyes.