The Motley Fool

If I’d invested £1,000 in Royal Mail shares a year ago, here’s how much it would be worth today

Preparing a budget during a pandemic
Image source: Getty Images

Although Royal Mail (LSE:RMG) shares have seen a disappointing few months in terms of performance, the long-term picture is still positive. Over a one-year period, the shares are up 102% at the current level of 490p. Earlier this year, the share price did top out above 600p. From there, it lost ground over the course of the summer. So how would my theoretical £1,000 investment look now, and what could the future hold?

Positive returns over the past year

Given that Royal Mail shares are up 102% over the past year, my £1,000 would be worth £2,020 today. This is undoubtedly a great return over this time frame. In fact, when I look at the FTSE 100, there are only three other companies within it that would have doubled my money over the past year.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

However, I do need to take this return with a slight caveat. Over the past year, 80% of FTSE 100 companies have delivered a positive share price return. This is a very high figure. The reason that most stocks are in the black is that the period takes into account the aftermath of the stock market crash last year.

After the crash in March, we did see a bounce higher in April and May, before the index stalled over the summer. It was really only in the autumn that we saw stocks materially move higher. This move has continued in almost a linear fashion. Therefore, most stocks would have given me a profit if I’d bought a year ago.

This doesn’t take away from the big return of Royal Mail shares, but does highlight that some of the gains have been driven by improving investor sentiment generally.

Could Royal Mail shares have more gains?

In terms of company-specific factors, Royal Mail shares have benefited from strong customer demand for the firm’s services. This was particularly driven by growth in parcels last year, accounting for 59.3% of revenue for the group. Even though letters volume declined, increased parcels demand from the pandemic saw a net increase in revenue. Ultimately, this led to a 2020 reported profit of £620m, up significantly from the 2019 figure of £161m. 

However, continued gains are in no way guaranteed. I wrote last month about how I would actually prefer to sit on the sidelines for the moment instead of investing in Royal Mail shares. My view is unchanged today. 

Primarily, I see a risk of falling parcels volume now that pandemic pressures are easing. The ability for customers to shop in-store or not to be so homebound for deliveries should provide negative headwinds for the company. In fact, in the trading statement released in July, parcels volumes were down 13% for the quarter. 

Unfortunately, I think that this trend could continue. With letters volumes unlikely to be able to increase enough to offset this fall, I struggle to see how Royal Mail shares can deliver anywhere near the performance seen over the last year.

I could be wrong, with a further update due to next week from the company. If a promising outlook is given, then the shares could rally. But currently, I’m not keen to buy.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

jonathansmith1 and The Motley Fool UK have 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.