Should I sell, hold or buy more Royal Mail shares is a common question that first-time investors may be asking. Each option potentially has its merits as guest editor James Murphy shares his thoughts:
Selling Royal Mail Shares
Royal Mail’s current share price means that initial investors in the Royal Mail IPO have realized a near 70 percent gain in their investment within a matter of weeks. Selling Royal Mail shares now may appeal for the following reasons:
- Panmure Gordon (analysts) have put a target price on the stock of 570p, its share price is now at 555p – so one may infer that Royal Mail’s valuation is near reaching its limit in the short-term.
- You want to invest more money in other shares. The initial IPO allocation of £750 means that exceptional gains cannot be realized unless Royal Mail’s share price rises by triple digit figures. Therefore, investors may seem it wise to take the £500 ‘profit’ and invest it as part of a larger investment in another stock.
- It’s no longer a ‘top choice’ for income-seeking investors as its dividend yield has sharply fallen in line with its increase in share price.
Buying More Royal Mail Shares
- Analysts and market-talk will lead us to believe there is still some upside for Royal Mail shares. Panmure Gordon’s revised target price of 570p suggests there is still some room for sh0rt-term growth. It was previously revealed that one investment bank also valued the company closer to the £10bn mark.
- Royal Mail shares can help diversify a portfolio as the offering is relatively unique within the UK. Analysts commonly report on the expected continued growth of its parcels business as online shopping continues to grow at the expense of high street retailers.
Holding Royal Mail Shares
- This is obviously the top-choice for investors who believe there is still much value to be realized from the stock. As mentioned above, Royal Mail shares can also help build a diversified portfolio.
- A compromise may be to sell approximately 135 of the 227 shares you were allocated under the IPO in order to recoup your initial investment of £750. You will still be sitting on Royal Mail shares worth over £500 at the current market price.
One must also appreciate that we are in something of an ‘equity friendly’ environment at the moment. The decision on whether to sell, hold or buy more Royal Mail shares ultimately comes down to the appeal of other investment opportunities, the amount of capital you can risk and your investment time-scale horizon.
The Royal Mail IPO serves as an excellent introduction to investing, but it is by no means representative of the roller-coaster ride that many investors experience in the stock market.
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