Shareholders who bought Royal Mail (LSE: RMG) a year ago have nearly trebled their investment. And it’s not just getting in at the depths of the pandemic crash. No, the Royal Mail share price is up 135% in the past two years, so it’s well ahead of its pre-Covid price too.
But Royal Mail has been suffering from well-publicised longer-term problems. Falling letter volumes, labour unrest, increasing competition, and slow adoption of technology have all taken their toll. The net result is that RMG shares are only just back to around where they were five years ago.
I do want to stress that where Royal Mail shares might go over such a short period of just one month won’t really matter in the long term. But it looks like sentiment towards the company might be adjusting. And I wonder whether August’s movements might be indicative of a medium-term trend.
Royal Mail share price weakness
Since early June, the Royal Mail share price has been falling back. And a trading update on 21 July did nothing to stop the decline. I thought the update was fine. But two key statements suggest we might be moving to a post-pandemic evaluation of the company.
Chair Keith Williams said that “For Royal Mail, as expected, parcel volumes decreased and letter volumes increased compared to the exceptional period last year encompassing the UK’s first lockdown.“
He added that “For GLS, as expected, parcel volume growth continued albeit at a slower rate, due to the exceptionally strong comparators from the same period in 2020-21.“
Investors changing focus?
To me that indicates that Covid bounty time is ending. So RMG might not be one for those seeking quick profits any more. And investors might need to reassess what ‘business as usual’ is going to look like. Perhaps those who made the big gains over the past year or so are selling out and taking their profits, and that’s why the Royal Mail share price is dipping? In their position, I expect I’d do the same.
For those with a longer horizon, there was one comment from Williams that made me take note. He said: “We are starting to see evidence that the domestic parcel market is re-basing to a higher level than pre-pandemic, as consumers continue to shop online.”
That’s good, and it’s a trend I’ve always expected. During lockdown, people who hadn’t done any online shopping before gave it a go. And they liked it, so much that many are sure to carry on with it. But the big uncertainty now is what parcel volumes will look like once we’re fully clear of the pandemic effect. And that, I think, could weigh on the Royal Mail share price in the coming months.
So what do I think might happen in August? Well, my record of short-term predictions is not very good. But this is just a bit of fun, and my investment decisions are always based on my long-term outlook. Still, I’m wondering if we might see a month or more of modest retrenchment, as investors ponder and digest the changing times.
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Alan Oscroft 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.