The Motley Fool

The Royal Mail share price has soared 40%. Time to buy?

Image source: Getty Images.

The Royal Mail (LSE: RMG) share price has been one of the market’s big winners over the past few weeks. The stock crumbled to a low of around 120p in the middle of April. However, since hitting this level, investor sentiment towards the business has dramatically improved.

And as investors have returned to the Royal Mail share price, it has surged by more than 40% from the April lows. But despite this performance, the company has not reported a dramatic improvement in its underlying fundamentals.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Royal Mail share price on offer

Like many companies, the past few weeks have been an extremely turbulent time for Royal Mail. The group has suffered disruption to its operations, and, as of yet, it’s not clear what the ultimate impact of the coronavirus crisis will be on the organisation’s bottom line.

While the company has benefited from an increase in parcel deliveries in the lockdown, this hasn’t been enough to offset rising costs and declining letter deliveries.

A recent trading update noted that revenue from letters declined 23% in April, which was only partially offset by a 20% increase in parcel revenue. Overall, revenues declined £22m and costs jumped £40m in the month.

We don’t know how the business fared in May at this stage, but if the trends seen in April continued, it might be the case that Royal Mail’s revenue continued to decline.

As well as falling sales, the company also remains exposed to other risks. A second wave of coronavirus and economic uncertainty could continue to weigh on the Royal Mail share price during the second half of 2020.

Unfortunately, Royal Mail also lost its CEO. In the middle of May, the company announced that chief executive Rico Back would step back with immediate effect. Non-executive chairman Keith Williams is stepping in on an interim basis into the role.

Losing a CEO who was only with the business for two years in the middle of a crisis seems careless. The company needs a clear strategy to navigate through the crisis and rebuild over the next few years.

It is going to be challenging to set out this strategy without a fixed CEO. This uncertainty could continue to weigh on the Royal Mail share price for some time.

Setting out a plan

In the last trading update published to the market, Royal Mail declared that it would provide a further update on its long-term plan towards the end of June. With this being the case, it might be sensible to wait for this plan before taking a position in the stock.

The trading update should give investors some more background on how the company has been coping with the coronavirus crisis, and what it plans to do to reinvigorate the business and drive growth over the next few years. There might be some significant changes, and possibly even a cash call.

As such, staying on the sidelines could be a sensible strategy for the next few weeks.

If you are looking for a replacement for Royal Mail in your portfolio, there are plenty of other companies that we think have brighter prospects right now.

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

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

Rupert Hargreaves owns 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

The renowned 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 enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.