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The Royal Mail (LSE: RMG) share price returned a staggering 64% between January and the beginning of June. Unfortunately, the stock’s slumped after reaching a multi-year high of around 606p in early June. At the time of writing, shares in the group have fallen a depressing 33% from that level.
But even after this performance, shares in the business have added 70% over the past 12 months. So at least long-term investors have been well rewarded for their patience.
However, as the stock continues to slide, both seasoned and newer investors may be starting to ask, will the Royal Mail share price keep falling?
Business challenges
Last year, Royal Mail benefited from a boom in parcel deliveries. This has continued well into 2021, albeit at a slower pace. There’s been a real step-change in the e-commerce market, and while the reopening of brick-and-mortar retailers has taken some energy out of this boom, the market’s continuing to grow even from 2020’s elevated levels.
Royal Mail isn’t the only delivery company in the UK, but it’s the largest and most recognisable. This is both a benefit and a drawback.
On the one hand, the company’s recognised around the country and has the market to itself in certain regions. However, on the other hand, the group has to maintain a certain level of service in areas that may not be the most profitable. Its competitors don’t have to. They can pick and choose the markets they want to operate within.
Still, the company’s risen to the challenge, and the Royal Mail share price has benefited.
But now, the group’s entering a period of investment, and I think the stock’s been on the back foot recently as investors have been trying to digest what all this means.
The group plans to spend hundreds of millions of pounds over the next year or two upgrading its infrastructure. This will have a significant impact on profitability. At the same time, it’s unclear if it’ll maintain market share and if parcel volumes will continue to grow.
Royal Mail share price potential
While I believe that the company will continue to benefit from the e-commerce market’s continued growth, general market uncertainty will also shroud the stock’s outlook in the near term.
As such, I think the Royal Mail share price may continue to decline, at least until there’s some further news on its investment programme.
But I think this could well be an opportunity as a long-term investor. I can buy into a UK growth story that’s in the middle of a transition. When the company’s completed its infrastructure investment programme, I think profits will grow, and the stock should reflect that. This is why I’d acquire the shares for my portfolio today.
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Rupert Hargreaves 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.
