4 reasons the National Express share price can rally now

The National Express share price has recovered quite a bit from the stock market crash last year, but Manika Premsingh believes the best is yet to come for it. 

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The FTSE 250 coach stock National Express (LSE: NEX) has already recovered quite a bit since the stock market crash happened at this time last year. But I think the National Express share price can still rally from its current levels. 

Here’s why:

#1. Improved trading in 2021

While its 2020 financials were affected by the pandemic, National Express has reported strong business in the first two months of 2021, with revenues up by 17%. 

Notably, revenues from ASLA, its Spanish division, rose by 23% because of new contracts. Its North America revenues are also up a healthy 16% because of contract renewals and its acquisition of WeDriveU, an employee shuttle provider with Silicon Valley companies as its customers, in early 2019. 

#2. Business expansion

Despite a poor year for business, National Express made headway in contracts, securing £900m of revenue. This includes contracts in geographies like Portugal, which run for several years, school bus contracts in North America, and an employee shuttle contract for “the world’s largest online retailer” in the UK, as per its latest financial release as well. 

#3. Meeting environmental standards

At a time when ESG investing is gaining ground and there is greater awareness than ever before about clean energy, I like that National Express is making progress with electrification. 

It now runs 29 electric buses in England’s West Midlands. It has also won the contract to operate hydrogen-powered buses in Birmingham that will start running this year. The company also says that it is on track to have a zero carbon emission fleet by 2030. 

#4. National Express share price is still subdued

Despite the progress made, however, I think the National Express share price level shows continued investor diffidence after its difficult past year. This combined with its potential as the new contracts kick in, lockdowns lift, and life goes back to normal indicates to me that the stock is poised to rally. 

This is even more so because its share price is still around 35% lower than it was last year just before the stock market crash occurred. Many other stocks across sectors have pushed past these levels a while ago, including Dominos Pizza, mining giant Glencore, and retailer JD Sports Fashion, as examples. 

I reckon that as prospects for travel stocks like National Express improve and other shares start looking pricey, they will become more attractive, which could lead to a share price rally. 

Risks to the National Express share price

While the future looks bright, the pandemic is still underway. Coronavirus variants could impact the pace of recovery. Moreover, the Financial Times reports that 76 passenger vehicle groups have gone under in the UK in the past year. This indicates the extent of the challenge faced by the sector, if the pandemic does not end soon enough. 

The takeaway 

On the other hand, there is now less competition in the sector and a chance to consolidate, which could be an opportunity for National Express. I like the stock and think there is a good chance for the National Express share price to rally now. I have bought the share.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh owns shares of Dominos Pizza, Glencore, JD Sports Fashion, and National Express Group. The Motley Fool UK has recommended Dominos Pizza. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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