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Shares of Royal Mail Group (LSE:RMG) are among the most popular stocks to own in the UK. In fact, just 10 financial institutions have almost 40% of all the outstanding shares on their books. But is this vast popularity reflected in the share price performance? Or should I be looking elsewhere for lucrative investment opportunities?
A closer look at the performance of Royal Mail shares
Similar to my recent dive into Lloyds, Royal Mail shares have delivered pretty underwhelming results, despite their popularity. Over the last five years, the stock has only generated a return of around 11%. That’s the equivalent of an annualised gain of 2.7%, barely beating inflation, meaning a £1,000 investment in December 2016 would now be worth around £1,110.
That’s still better than the disappointing -3% yielded by the FTSE 100 index. And when including the additional income generated by dividends, Royal Mail’s performance does improve. But not enough to satisfy my wealth-building expectations. So, what happened?
From what I can tell, the company grew somewhat complacent over the years, allowing other logistic fulfilment and delivery businesses to steal market share. With its letter delivery division slowly losing steam, its parcel segment left underdeveloped for quite some time, Royal Mail shares have unsurprisingly suffered.
Having said that, management finally seems to be taking action. With increased investments into new logistics centres, e-commerce fulfilment, and international expansion, the stock looks like it could be at the start of a comeback. But with an elevated level of debt on the books, is there a better company for me to invest in?
A future king of online shopping delivery solutions?
There are plenty of parcel delivery firms serving the e-commerce industry today. And most are pretty similar, with no major discernible advantage beyond the size of operations. That’s why Clipper Logistics (LSE:CLG) has caught my attention.
Instead of offering a bog-standard parcel delivery service, the company takes it one step further to provide a complete order fulfilment ecosystem. That means beyond handling delivery, the group offers returns management, inventory tracking, warehousing, and a plethora of other support services uniquely designed for each of its customers.
As such, retailers can focus entirely on developing and selling their products, while Clipper Logistics handles everything related to getting those products into customers’ hands. And this solution has proven to be immensely popular when looking at its client list. Halfords, ASOS, and Morrisons are among many leading businesses letting Clipper handle all their order fulfilment needs. So, I’m not surprised to see the share price jump more than 80% over the last five years.
That’s nearly eight times more than Royal Mail shares have managed to deliver. But it’s not without its risks. As it charges its customers on a usage basis, an economic downturn could significantly affect the revenue stream. After all, if consumers start saving instead of spending, the need for Clipper’s services will naturally start to fall. But given what the company has managed to achieve so far, that’s a risk I’m willing to take for my portfolio.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Clipper Logistics. 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.
