After several years of poor performance, the Royal Mail (LSE: RMG) share price has woken up since the beginning of 2020. From a low of around 130p at the beginning of March, the stock has jumped to more than 300p, at the time of writing.
And, following this performance, I’m seriously considering adding this stock to my portfolio. If the shares continue on their current trajectory, I believe there’s a good chance the stock could continue to rise in the near term.
Operating performance
Royal Mail has been struggling since its IPO in 2013. Declining letter volumes have hit the company’s top line, while costs have remained stubbornly high.
The group has undertaken several restructuring programmes to try and turn things around. Unfortunately, none of these seem to have yielded the desired results. That has hurt investor sentiment towards the Royal Mail share price.
However, it’s starting to look as if 2020 is Royal Mail’s year. The company has benefited from a surge in parcel delivery volumes during the pandemic. Its latest update noted revenue increased 9.2% across the group for the 26 weeks ended 27 September. Parcels revenue increased by 33.2%, offsetting a 20.5% decline in letter sales.
Despite this performance, the group reported an operating loss of £20m for the half-year. Rising losses at the domestic business were more than offset by growth at the firm’s international division. Operating profit at the international division hit £166m.
What’s in store for the Royal Mail share price?
The last time I covered the company, I said I was excited about Royal Mail’s decision to invest in its parcels business. I continue to stand by this view. I believe today’s trading update shows why this is going to be a sensible course for the corporation.
The e-commerce market is booming, and that’s unlikely to change after the pandemic. Companies have to adapt and change with the times. While Royal Mail has been slow on this front, it’s now taking action. Management has introduced parcel postboxes, parcel pick-up services and automated parcel processing. These initiatives should give the business an edge over its competitors.
I think that’s what the organisation has been lacking for so long. There are plenty of other firms that offer the same parcel delivery service as Royal Mail. The company’s edge is its brand, which is recognised across the UK. I believe many consumers would rather use the firm for that reason. However, a lack of options has forced customers to go elsewhere.
Management is now taking action to recapture market share. And the initial figures suggest these efforts are taking hold.
As such, I’m going to be taking a closer look at the Royal Mail share price. If sales continue to increase, I think this could be a good sign the business’s turnaround has finally started to take shape. That would be a good sign that it’s time to buy the stock for my portfolio.
