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Royal Mail (LSE:RMG) has benefited from pandemic restrictions as there has been a rise in online shopping and parcel deliveries. In turn, the Royal Mail share price is considerably higher than before last year’s market crash. Can RMG continue its current momentum further into 2021 and be a good investment to buy and hold?
Royal Mail share price since the crash
Since the market crash last year, the RMG share price has experienced quite the roller-coaster ride. Its price dipped in March, April, and May, like most other stocks. Between January 2020 and its lowest point of the crash in March, its share price reduced by almost 45%. At its lowest point I could pick up shares for just 126p.
As I write, the Royal Mail share price is close to 467p per share. This is a huge 276% increase since the crash low. I believe the vaccine and boosted performance has increased investor sentiment and RMG has benefitted from this already in 2021.
Recent performance
A Q3 trading update released last month will have boosted investor sentiment and the Royal Mail share price too in my opinion. It made for positive reading. RMG described it as “an unprecedented quarter”. It was RMG’s busiest ever quarter for parcels handled which it tallied at 496m. The additional revenue stream of PPE delivery and vaccination kits also helped boost performance. This could continue well into 2021 and beyond too.
In the nine months to December 2020, RMG reported group revenue increased 13.5% compared to the same period last year. Royal Mail revenue alone rose 9.3%. Parcel revenue in this period also rose a huge 31% compared to the same period last year. In turn, parcel revenue alone rose 37%.
The Royal Mail share price will have benefitted from the performance of its small international parcels operation, General Logistic Systems (GLS). Its recent Q3 results showed a revenue increase of over 24% and volume increase by 23%. I believe this small parcel arm could be a key part of RMG’s growth plans in the future. It is fair to say based on these results, that RMG has had a fruitful 12 months since the pandemic struck.
Issues and my verdict
I am not fooled by the RMG share price. It has its problems. 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.
I am not convinced by the Royal Mail share price from an investment perspective. I believe there are too many issues and a track record that deter me from investing my hard-earned cash. 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 that has a history of strike action. I appreciate the Royal Mail share price has rallied in 2021, but that isn’t enough of a reason for me to invest my money.
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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.
