The Royal Mail share price is flying! Here’s what I’m doing now

With the Royal Mail share price soaring in the past month, Jabran Khan explains whether he is tempted to invest or avoid.

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During the Covid-19 global pandemic, Royal Mail (LSE:RMG) has been a big winner. The rise in online shopping and parcel deliveries has benefitted the postal services provider. In turn, the Royal Mail share price is considerably higher than pre-market crash levels. With that in mind, do I invest my hard earned cash or not?

Royal Mail share price since the crash

Since the economic downturn, the RMG share price has experienced quite the roller-coaster ride. As with most other stocks across the markets, its price dipped in March, April and May. The lifting of restrictions in June saw its price begin a recovery of sorts. At its lowest point I could pick up shares for just 126p. Shares were trading for 182p per share in February. As I write this the Royal Mail share price is close to 340p. The news of a Covid-19 vaccine has boosted many stocks and investor sentiment is up too in my opinion.

Recent performance and Covid-19 implications

With the rise in parcel deliveries due to restrictions, RMG reported its parcel revenue superseded its letters revenue. This is the first time this has ever happened in its history. I’m not too surprised as sending letters is seen as something of a dying art, given advancements in technology and a changing demographic across the country.

Despite Covid-19 being a fruitful time in terms of performance for RMG, it has also brought to light some of its deeper rooted issues. I believe the Royal Mail share price has been hindered by this despite its recovery since the crash. One of those problems is that of its reliance on revenue from the letters side of the business. In addition to this, it has failed to properly invest in the technology needed to grow the parcel side of the business. Furthermore, RMG has a unionised workforce that has caused issues such as strike action. 

The Royal Mail share price will have benefitted from the performance of its small international parcels operation, General Logistic Systems (GLS). Its recent interim results showed a revenue increase of over 20% and operating profit increasing by over 80%. I believe this small parcel arm could be a key part of RMG’s growth plans in the future.

What I’m doing now

Recent analyst upgrades have helped the Royal Mail share price rally in my opinion. JP Morgan, Goldman Sachs, and UBS have all upgraded RMG shares in recent weeks. I believe these upgrades are linked to three main aspects: RMG’s performance at the height of the pandemic, a changing world whereby parcels rule over letters, and GLS’ positive results.

I am not overly buoyed by RMG from an investment perspective and would not invest my money right now. For me, there are too many issues and a track record that doesn’t fill me with confidence. I believe RMG needs to invest heavily in technology and somehow reduce costs too. It will need to do this as well as contend with a unionised workforce. There is too much work to be done in my eyes. Casting aside the tempting Royal Mail share price, I am looking at alternatives such as this bank stock.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jabran Khan 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.

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