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The Royal Mail share price leapt 15% in May. Can RMG keep going?

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A Royal Mail GLS delivery man
Image source: GLS

Royal Mail Group (LSE: RMG) operates the UK’s universal postal service, as well as being a leading courier company. Founded in 1516 by King Henry VIII, it’s been around in one form or another for 505 years. With this long-established pedigree and ‘boring’ business model, owning the shares must be dull, right? Wrong! In fact, the Royal Mail share price has been on a roller-coaster ride since peaking in May 2018.

The Royal Mail share price’s roller-coaster

Royal Mail was publicly owned until October 2013, when it was floated in London. At the IPO, the price was set at 330p. At the float, 60% of RMG shares were sold to investors, with another 10% given free to employees. This raised almost £2bn for HM Treasury and left the government owning 30% of the company. But there were accusations of it ‘flogging Royal Mail on the cheap’ after its shares rose by almost two-fifths (37.9%) to close at 455p on their first day of trading.

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But after surging to peak above 600p in mid-January 2014, the Royal Mail share price then entered a lengthy decline lasting almost four years. By early September 2017, RMG stock had dropped to close below 376p, just 46p (13.9%) above its 330p float price. But then came the next leg of the RMG roller-coaster ride as the shares skyrocketed, peaking at an all-time closing high of 631p on 11 May 2018.

RMG soars since April 2020

Sadly, this latest price peak went the same way as the early-2014 high. Over the next two years, the Royal Mail share price underwent a spectacular and sustained collapse. On 3 April 2020, RMG stock closed at 124.3p, down over four-fifths (80.3%) from its all-time high (and also more than £2 below its 2013 flotation price). What a disaster for RMG investors, right? Wrong again!

Since hitting rock-bottom during 2020’s market meltdown, the Royal Mail share price has been on an incredible tear. On Friday, 28 May, RMG closed at 578.6p, valuing the group at £5.8bn. That’s more than 450p above its closing low of 3 April 2020. In other words, RMG stock has soared 365.5% in 14 months, turning £1,000 into £4,655. Wow.

What next for RMG stock?

So, the Royal Mail share price has been anything but boring. Here’s how it’s performed over eight different timescales. As you can see, it has produced positive returns over all eight periods. Indeed, owning RMG shares in 2020/21 has produced outstanding returns. But can this outperformance continue?

1W +7.2%
1M +14.6%
3M +26.7%
6M +87.1%
1Y +222.4%
2Y +177.2%
3Y +9.1%
5Y +0.8%

I’m a Fool, not a fool, so I won’t even try to predict the short-term movements of the Royal Mail share price. But, for me, for RMG shares to go higher, the group has to make positive progress on three major issues. First, the perpetual threat of strikes from its highly unionised workforce. RMG employees have voted to strike three times since October 2017, but industrial action was narrowly averted each time. Second, the long-term decline in letter deliveries leaves RMG with a costly and ongoing legacy to manage. Third, the huge boom in online shopping and parcel deliveries during lockdowns needs to continue in the new post-Covid-19 norm. However, with this third issue most critical and least certain, if I already owned the shares, I’d see RMG as no better than a hold for now. But I don’t, so I won’t be buying just yet, although it’s now on my buy watch list.

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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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