The Motley Fool

The Royal Mail share price has doubled in a year. Will it do so again?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

GLS van in front of building
Image source: GLS

The past year has been great for many stocks because the stock market rally that started in November 2020 has vastly improved their fortunes. But the mail and parcels delivery specialist Royal Mail (LSE: RMG) stands out among them for two reasons. One is that its share price has seen significantly higher gains than many others. If I had bought the stock last September, by now, I would have doubled my money. Two, with such rapid gains, its market capitalisation rose enough for it to re-enter the FTSE 100 index.

Strong growth for Royal Mail

There is little doubt that the company benefited from the pick-up in parcel delivery services as we stayed locked down for much of 2020 and well into 2021. Revenue earned from its parcel services outstripped that from letters for the first time last year. However, now that the pandemic has moderated and life has pretty much gone back to normal, the key question for me is: can Royal Mail can maintain its momentum?

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

So far, things appear to be going well for it. For the financial year so far (starting 1 April and up to the end of August), it reported an 8.2% increase in revenue from last year. Further, it has done even better compared to 2019, which is the last normal year before the pandemic. Its revenues are up 17.7% on a two-year comparison. 

Profits expected to rise higher

Its outlook for the rest of the year is also encouraging. It expects adjusted operating profit for the first half of the year to be between £395m and £400m. The number should be even higher in the second half of the current financial year. Even if I assume that it will be exactly the same as that in the first half, we can expect around £800m in adjusted operating profit for the full year. This means that we are looking for at least a 14% increase from the £702m seen last year. 

Parcel growth can slow down

There are potential stumbling blocks, of course. It says there is still “significant short-term uncertainty”. Also, the numbers for only July and August, which is the post-lockdown period, show a slowdown. Revenue has grown by only 4.5% during these two months, with a decline in parcels delivered by Royal Mail of 4.6% during this time. While the company chalks it up to a seasonally slow period, I think this indicator is worth watching. If it does not pick up even after the summer months, it could reflect a genuine downturn in parcel demand post-lockdown.

My takeaway for the Royal Mail share price

The long-term prospects for the company look good however, irrespective of any near-term risks. The company believes that some consumers may have permanently moved to online purchases after last year’s experience. Continued growth across the e-commerce ecosystem, including that for retailers and packaging providers, also supports this idea. 

Based on this, I agree that it does have good growth potential over the long term. So, I have doubts about whether the Royal Mail share price can continue to grow at the same pace as last year (which was an outlier). That said, I still think it is a buy for me.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

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.

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.