The Motley Fool

The Royal Mail share price rises 31% to a 1-year high! Here’s what I’d do now

Image source: Getty Images.

Royal Mail (LSE:RMG) has been on a tear this week, with a whole 31% increase in share price as I write, compared to 2020’s average. As a result, it’s now at a one-year high, with much of the increase seen after it posted its trading update on 8 September. On that day alone, the Royal Mail share price increased by 25%. 

Royal Mail share price rises on positive update

The update was more upbeat than expected, thanks to superior performance by the company’s parcel business even as its letters business struggled. As a result, it now expects that its 2020–21 revenue can be higher than it was last year. This is a marked shift in outlook from its June update, when it expected revenue to be up to £250bn lower compared to the year before. It also expects Covid-19-related costs to be lower than earlier anticipated. 

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...

So far, so good. But is that reason to buy the Royal Mail share at the current price? I’d consider the downsides carefully as well before taking a decision on it. The first point to consider is the ongoing economic uncertainty. Even though RMG’s business is closely linked to the economy, because the latest recession went hand-in-hand with the lockdown, the company’s business actually benefited. But with easing of lockdowns, RMG’s update says that there may be a slowing down in letters and parcels volumes. If we add economic weakness to the mix, then the next few months could be harder for it. 

Strained labour relations

Next, its souring relationship with the strong trade union has been a thorn in RMG’s side for a while now. In its latest update it mentions clearly that it’s “disappointing” that an agreement has not been reached for a while now. There’s some room for optimism in this regard however. One, its recent leadership change may well be a positive for the company and the Royal Mail share price. It’s too soon to see the difference. However, two, the trading update also mentions that the group has “increased the intensity of discussions” to make quick progress. These are positives, but until there’s some real breakthrough, I’m not holding my breath. 

The upshot

Last, I’d consider when it will next start paying dividends. The Royal Mail share price was buoyed substantially because of its impressive dividend yield in the recent years. However, the dividend suspension, in line with that seen among many other FTSE companies, sent it tumbling. To be fair, it has recovered since. And it has received another shot in the arm after the latest update. But, I’m not sure if the share price recovery is sustainable because of the uncertain environment it operates in. I’d wait for more evidence of improvement in underlying conditions for RMG before buying the share. In the meantime, I’d consider other FTSE options. 

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!

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.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- 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.