Institutional appetite for Royal Mail continues to escalate, according to investor sentiment data compiled by AI specialist Irithmics.
The Somerset-based machine learning specialist which also studies sensitivity to newsflow around listed companies, is reporting very high levels of investor sentiment around Royal Mail at the moment.
Irithmics reported maximum positive bias for institutional investors holding or following Royal Mail shares over the last week. This includes a high sensitivity to news output from Royal Mail.
Irithmics reported strong positive sentiment on the part of large investors in Royal Mail stock earlier this month, since which time Royal Mail shares have climbed from 218p to 231p today. The Armchair Trader reported on 6th November that there was an established resistance level at 225-230p. Royal Mail broke that on 12 November indicating a new bullish phase which is supported by the AI analysis.
What is holding Royal Mail shares back?
Royal Mail has been hampered historically by a number of factors, including competition from alternative parcel delivery methods and growing reliance on email and digital communications. But as reported previously, the company has been experiencing strong growth in its parcel business.
Currently there are only three analysts out of 14 which have a buy recommendation in place for Royal Mail. However, it is due to report first half earnings on 21 November. Operating profit is projected to be £232 million with headline earnings per share of projected to drop by 46%.
On the surface, Royal Mail is still battling headwinds like a possible strike by postal workers over the critical Christmas period and the need to invest £1.8 billion to upgrade operations which are still functioning as if it was the 1980s. It is operating in a competitive environment.
Institutional investors are backing Royal Mail
However, the sophisticated analysis of data, news and investor behaviour by Irithmics does point towards ongoing positivity by the bigger buyers of the stock. We don’t see quite this level of bullishness in FTSE 100 stocks, so it is worth remarking upon.
The shares also still look cheap, well below the five year average (9.3 times forward earnings). There are many reasons for investors to continue to want to load up on the stock while it is still south of 300p (e.g. new services like parcel post boxes) and we suspect they are continuing to do so. Expect to see more buying activity from funds as negative news emerges to drive the price down, but overall the big money seems supportive of the share price.