Other FTSE stocks might be struggling to get back to their pre-crash levels, but the Royal Mail (LSE: RMG) share price is already there. Last week, its share price hit an almost three-month high. At the end of last week, it closed at 176p. This was an 8.4% jump from the day before. It was also the highest level seen since the last week of February.
Management changes underway
It’s not hard to see why the RMG share price bounced back. CEO Rico Back stepped down after two years at the helm last week. His term was marked with disagreements with the group’s strong workers’ union, which decided to strike more than once during this time. Additionally, Brexit uncertainty had kept the UK economy in limbo for the past few years. RMG’s business is sensitive to economic cycles, and was impacted as a result. More recently, the coronavirus crisis took its toll.
Still, I think the Royal Mail Group was an attractive, if not risky share to buy for its double-digit dividend yield. But, expecting potential losses from its letters business, the group suspended dividends at the end of March. This resulted in a 17.6% drop in share price on the day. While it started picking up soon after, the latest news gave it quite a bump up.
What’s next for the Royal Mail share price
The question now is whether the Royal Mail is share worth buying. That the interim executive chair, Keith Williams, is experienced in resolving human resource disputes is a positive. He was able to do so at British Airways earlier. But he is in an ‘interim’ role. This suggests that he may or may not be in it for a meaningful amount of time. So, whether he’ll successfully resolve trade union disputes remains to be seen.
Moreover, even if we were to put Royal Mail’s workforce issues aside for now, the fact is that its letters business is undergoing a structural decline in favour of electronic communication. While the parcels business is growing, it faces competition from other players. Its plan to turn the business around by 2024 has been suspended for now. As a result, it remains to be seen what’s next for the Royal Mail share price.
While the sharp rise of Royal Mail shares can give investors some serious FOMO, I think it’s best to hold back for now. Once its next steps become clearer, the long-term investor will have a better perspective on what’s in store for the company. For now I think there are safer and more rewarding FTSE stocks to invest in. A number of FTSE 100 stocks, for instance, have seen impressive increases in share price since the stock market crash first started, maintained dividends, and seem to have secure prospects too.
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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.