The IDS (LON: IDS) share price has pulled back in the past few weeks as the recent momentum fades. Shares of the company, which also owns Royal Mail, have retreated to 240p, down from the year-to-date high of 280p. It remains about 25% above the lowest level in 2023.
Growth and profitability concernsRoyal Mail’s parent company is going through a challenging period as the cost of doing business rises and demand for its services slows. Demand for letters has continued falling as consumers prefer digital messages.
At the same time, while e-commerce growth is continuing, the trend has slowed down dramatically compared to during the COVID-19 pandemic era. The most recent data by the Office of National Statistics (ONS) revealed that sales continued dropping in September.
The headline retail sales dropped by 0.9%, worse than the median estimate of -0.2%. Similarly, core retail sales fell by 1.0%, also weaker than the expected decline of 0.4%. Online sales also declined during the month.
These numbers are important for IDS because the company has pivoted to parcel deliveries in the past few years. The most recent results showed that the volume of parcels dropped from 314 million in the three months to June to 283 million. Addressed letters also continued dropping.
IDS still saw its revenue increase gradually to 3 billion pounds during the period. But this growth was due to GLS, the company that deals with its international business. Its revenue jumped to 1.2 billion pounds.
Therefore, I see no major catalyst for the company going forward. One of the likely things that could lower its expenses is a decision by the regulator to allow it to end deliveries to some of its least profitable locations. The company also needs to reduce its costs substantially.
IDS share price forecast
On the daily chart above, we see that the Royal Mail share price formed a double-top pattern at 272.50p between August and October. In chart analysis, this is one of the most popular reversal patterns. The stock is now nearing the neckline of this pattern at 233.9p.
The shares have also crossed the important 50-day and 25-day exponential moving averages (EMA). Further, the MACD indicator has moved below the neutral point. Therefore, I suspect that the stock will continue falling in the coming weeks.
By using the double-top measurements, we can estimate that the stock will drop by another 15% from the current level to the psychological level of 200p.
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