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Would I buy this penny stock or the Royal Mail share?

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As a rule, I think it is an encouraging sign when management buys a company’s shares. Like in the case of the AIM-listed logistics services provider, DX Group (LSE: DX). Earlier today, it said that its CEO, Lloyd Dunn, had purchased shares in the company. Clearly, other investors see it as a positive too. The penny stock is up almost 6% as I write. 

DX Group adds to its gains

This adds to the gains it has made over the past year or so. When I wrote about it in April it was fresh from a whole 270% increase in share price over the year. Between then and now, the DX story has only become stronger. 

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In May, it released a trading update about better than expected revenues from its freight business. As a result, it now expects that it will “significantly exceed existing market expectations for adjusted profit before tax in the current financial year”. The financial year in question ended on 3 July.

Fluctuating and pricey 

Between April and now, however, the DX Group share price has not seen a secular upturn. The penny stock has actually been fluctuating. This could be because its share price had already run up a lot and investors wanted to make some actual profits from the stock.

Another downside to the stock is that its price-to-earnings (P/E) ratio is high at almost 56 times. That does make me wonder how much further its share price can rise, though its outlook makes me optimistic. 

Royal Mail share is an alternative

Alternatively, I would consider buying another logistics stock. No points for guessing this one. It is the popular Royal Mail Group (LSE: RMG), whose share price has steadily run-up over the past year. In fact, when I last wrote about it in May, its share price increase was comparable to that of DX’s at 222% over the year. However, it is still quite affordable with a P/E of 9.3 times, which makes it far more attractive.

The downside

Royal Mail will continue to stay attractive, but only if it can keep building on the gains it has already made. As I pointed out when I last wrote about it, the company is not entirely positive in its outlook. Its parcel business got a huge fillip from the lockdowns, and it remains to be seen how far the progress can be sustained. 

My overall assessment

On the whole, though, I am positive on both stocks from a long-term perspective. One of the key themes around which I base my investments is the rise of digital shopping. Parcel delivery companies like DX Group and Royal Mail are a crucial part of it. The others are e-tailers themselves as well as packaging providers and warehousers. 

Between the two of them, Royal Mail has an advantage in that it is a cheaper stock than DX. At the same time, it is not as positive of its growth as DX. Ultimately, though, I think that I could buy both stocks for the long term.

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Manika Premsingh 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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