2021 was a great year for the Royal Mail (LSE: RMG) share price, which rose by a pretty big 50%. I bought it late last year, and for a time at least, it was a great stock to hold. Its share price soared and its share buyback was fairly good too. However, 2022 has not started on such a good note for me as an investor in the FTSE 100 stock. In the last month alone, it has fallen some 16%. Along with the gains from the share buyback, it has still been a good buy for me so far. But if its share price continues to fall, this might not be the case a few months from now.
So here, I ask this question: how are Royal Mail’s stock market fortunes likely to play out in 2022?
Why has the Royal Mail stock price fallen?
First things first, why has the stock fallen? The decline started in mid-January, possibly in response to delayed deliveries during the holiday season. The Omicron variant resulted in the absence of 15,000 staff. The share price stabilised after the company released its trading update in the last week of January. This showed that, while its performance in the final quarter of 2021 might have been dented compared to the year before, it was higher than that seen in the last comparable pre-pandemic period of 2019.
Dirt-cheap FTSE 100 stock
But here is what makes the stock really interesting to me right now. At its present share price, it has a price-to-earnings (P/E) ratio of 5.2 times. Let me put this in context. The average FTSE 100 stock trades at 16 times. If that does not make Royal Mail dirt-cheap, I do not know what does! Oh no, wait. Its share price is also 10% lower than it was last year. It is even lower than the highs seen in mid-2021. And is definitely lower than the highs seen back in 2018 when the company’s trade union went head-to-head with its management. And this is when the company’s financials look pretty decent to me.
Favourable structural winds
There is more. The pandemic has improved the long-term prospects for the stock. It plays a crucial part in the growth of the e-commerce industry, that has really come into its own during the lockdowns. In fact, it is now believed that the segment’s growth has been accelerated for good. And it even has a decent dividend yield of 3.8%. This is higher than the FTSE 100 average of 3.4%, which counts for something in my view.
My assessment
So, in sum, there is a lot going for the Royal Mail stock. It is super cheap and has solid long-term prospects. Its dividends are the icing on the cake. It has seen a tumble in price recently and faced some challenges during the holiday season, but I see that more as a bump in the road than a structural problem. I think it is only a matter of time before its price starts rising. I continue to like the stock and am ready to add to my current holdings.
