National Grid share price has imploded: buy the dip?

on May 24, 2024
  • National Grid’s stock price has plunged by over 20% from its highest point last week.
  • The company announced weak annual results this week as power prices fell.
  • It also announced a plan to raise about £7 billion to fund growth.

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National Grid (LON: NG) share price has become toxic this week as investors reacted to its financial results and a cut in UK power prices. The stock, which peaked at over 1,142p last week, has now plunged to about 911p, its lowest level since October last year.

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National Grid’s slowing business

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National Grid is one of the biggest utility companies in the UK, where it offers electricity distribution and transmission. It also has large operations in the United States, where it provides power to over 20 million people in New York and Massachusetts. 

The company published relatively weak financial results this week. In a statement, it said that its operating profit dropped by 8% to £4.47 billion while its profit before tax fell by 15% to £3.048 billion. Despite this, the company boosted its dividend per share by 6%. 

National Grid also made some other announcements. It plans to be a pureplay network provider and invest around £60 billion in the five years to March 2029. Its goal is to improve its network, increase efficiencies, and provide energy to more customers.

Therefore, the stock plunged as investors expect the new spending plan could impact its short-term profitability and shareholder returns. It could also lead to more dilution of the existing shareholders. Indeed, as part of this plan, the company has planned to raise £7 billion from investors.

National Grid’s share price also cratered after Ofgem announced its price cap changes. The regulator said that the average energy bill will be £1,568 in July, £506 lower than a year earlier. That is a big drop since the bill peaked at over £4000 in January 2023. Still, analysts expect that the bills will start rising later this year. 

So, is it safe to buy the National Grid dip? I believe that it is a bit risky to buy the dip right now as the company faces numerous risks. However, the crash has made it significantly cheap as it has a PE multiple of 4 while utilities have an average multiple of 20.

National Grid share price analysis

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national grid

NG chart by TradingView

Turning to the daily chart, we see that the National Grid’s stock price has been in a steep sell-off this week. It formed a big down gap after its earnings on Wednesday and another one on Friday. 

Along the way, the stock has crashed below the key support at $993p, its lowest swing in February this year. It also dropped below the support at 901.2p (October 2023 low), albeit briefly. The stock has moved below the 50-day and 200-day moving averages.

Therefore, I suspect that the stock will form a dead cat bounce – where a falling asset stages a brief rally – next week as investors buy the dip. If this happens, it will likely retest the crucial resistance point at 950p and then resume the downward trend.

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