Royal Mail plc (LON:RMG): What Does The Future Look Like?

In June 2019, Royal Mail plc (LON:RMG) announced its most recent earnings update, which revealed that the company endured a major headwind with earnings deteriorating by -32%. Investors may find it useful to understand how market analysts perceive Royal Mail's earnings growth outlook over the next couple of years and whether the future looks brighter. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.

Check out our latest analysis for Royal Mail

Analysts' outlook for the coming year seems buoyant, with earnings climbing by a robust 41%. This growth seems to continue into the following year with rates arriving at double digit 49% compared to today’s earnings, and finally hitting UK£282m by 2022.

While it’s useful to be aware of the growth each year relative to today’s value, it may be more valuable to gauge the rate at which the earnings are growing every year, on average. The benefit of this method is that it ignores near term flucuations and accounts for the overarching direction of Royal Mail's earnings trajectory over time, which may be more relevant for long term investors. To compute this rate, I've appended a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 13%. This means, we can anticipate Royal Mail will grow its earnings by 13% every year for the next couple of years.

Next Steps:

For Royal Mail, I've compiled three pertinent aspects you should further examine:

1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Valuation: What is RMG worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether RMG is currently mispriced by the market.
3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of RMG? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.