Here’s Why the Royal Mail Share Price Dropped After Earnings

The Royal Mail share price is in the spotlight today after the company published strong quarterly results. The RMG shares jumped to 540p and then erased some of these gains to the current 528p.

Royal Mail earnings: Royal Mail published strong annual results. The company’s annual results surged from £10.8 billion in the financial year that ended in March 2020 to more than £12.6 billion. 

The firm’s operating profit soared from more than £55 million to more than £611 million while basic earnings per share rose to 62.0p. The firm attributed the stellar performance to a 38.7% increase in parcel revenue while letters declined by 12.5%. In April this year, the firm’s revenue rose by 24.1% while parcels declined by 2%. 

Therefore, the Royal Mail share price declined because of lack of clarity about the future. In a statement, the firm’s chairman said:

“As the outlook for 2021-22 contains a number of uncertainties that could significantly influence volumes and costs it is difficult to provide specific guidance for 2021-22 for Royal Mail. Instead we have provided information on costs and some sensitivities to assist in quantifying potential outcomes for the year ahead.”

Royal Mail share price outlook

The daily chart shows that the RMG share price has been forming an ascending triangle pattern whose resistance was at 531p. The shares moved sharply above this resistance but there were not enough buyers to push it higher. The stock is still inside the ascending triangle and above the 50-day exponential moving average (EMA). 

Therefore, in my view, the stock could break out higher in the near term. The catalyst will be if the company will enter the FTSE 100 as some analysts believe. If this happens, all mutual funds and ETFs that track the FTSE 100 will need to add more shares. However, a drop below the 50-day EMA at 500p will invalidate this prediction.

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RMG share price chart

Royal Mail share price

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