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After the Royal Mail share price crash, it’s a cheap FTSE 100 share I’d buy

the royal mail (LSE: RMG) the stock price is down more than 30% on the year as I write this Friday afternoon. So far, 2022 has been particularly bad for the title. It tumbled pretty much everywhere. We could attribute the latest share price decline to the broader stock market correction. But the fact is that the Royal Mail share price was falling even before that. the FTSE100 plunge only exacerbated its decline.

The Royal Mail share price makes it a very cheap stock

Due to this fall, it has become a very cheap stock. Its share price has now returned to levels not seen since January 2021. At the time, the stock was climbing rapidly as part of the post-vaccine stock market rally.

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But it’s not just in absolute terms that Royal Mail’s share price looks cheap. Its stock market valuations are also exceptionally low. It has a price/earnings ratio (P/E) of 4.5 times, which is abysmal compared to the 15 times levels for the FTSE 100 as a whole. Additionally, his P/E has actually fallen from the already low 5.2x it was the last time I wrote about it.

Even if I consider other valuation metrics like price-to-sales (P/S) ratio, it’s still cheap. Its P/S is only 0.3 times compared to 1.4 times for the FTSE 100 index.

Good long-term prospects

I could understand why the stock price is so low if there are fundamental challenges facing the company. This is not the case, however. In fact, I’ve been of the opinion for some time now that his outlook has improved dramatically since the pandemic. The shift to digital shopping has accelerated due to lockdowns and Royal Mail’s parcel services are playing an important role in this.

Additionally, stress in labour-management relations has been a huge issue for her over the past few years, which has kept the stock price low. All of that is resolved now, however. It has recently faced disruption from the coronavirus, which has delayed Christmas deliveries and possibly lowered its share price in early 2022. But hopefully that should be behind it too.

What can go wrong for Royal Mail

We can never know for sure, however. The latest figures for patients admitted to hospitals with coronavirus have recently increased, which is worrying. Another wave of the virus could not only impact Royal Mail but the rest of the economy as well.

Also, the economy could suffer a setback anyway due to high levels of inflation. Prices were already rising rapidly and now, with the Russian-Ukrainian war, commodity prices in particular are expected to remain high for an unpredictable length of time. Business cost pressures as well as lower real consumer incomes could be a drag.

What I would do

Even then, I think these are short to medium term concerns. I bought the Royal Mail stock thinking long term. Over that period, I think there’s a good chance it’s going to be a pretty solid growth stock. I am now considering charging it while it is still very cheap.

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Manika Premsingh is the owner of Royal Mail. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of information makes us better investors.