Royal Mail’s share price is rising. Should I buy the stock now?

first_img Don’t miss our special stock presentation.It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.That’s why they’re referring to it as the FTSE’s ‘double agent’.Because they believe it’s working both with the market… And against it.To find out why we think you should add it to your portfolio today… Roland Head | Sunday, 21st February, 2021 | More on: RMG Simply click below to discover how you can take advantage of this. Enter Your Email Address Image source: Getty Images Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. Click here to get access to our presentation, and learn how to get the name of this ‘double agent’! Our 6 ‘Best Buys Now’ Sharescenter_img The Royal Mail (LSE: RMG) share price has risen by 175% since 8 September. That’s when the company said parcel volumes had increased by 34% since the start of the first UK lockdown. The postal operator’s shares are now worth 170% more than they were one year ago.Positive trading updates in December and early February have strengthened my view that Royal Mail is on track for a recovery. It’s a stock I’ve thought about buying, but I’m a bit surprised by the speed of the share price gains. Have I left it too late to buy the shares — or is there still plenty of runway ahead?5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…Record-breaking numbersI think it’s worth starting with a look at Royal Mail’s February update, which covers trading during the nine months to 30 December. The group handled a record 496m parcels during the final three months of 2020, as Christmas shopping moved online for most of us.Parcel volumes have remained high and Royal Mail says it’s kept on 10,000 of the 33,000 temporary workers hired at Christmas. An additional, 6,000 vans have been added to the fleet and temporary parcel centres have been kept open.Group revenue rose by 30% to £9,312m during the nine-month period, despite a 16% drop in letter revenue. As a result, Royal Mail expects to report an adjusted operating profit of more than £500m for the year ending 31 March.I’m not surprised Royal Mail’s share price has rallied. But, as a potential buyer, I need to look ahead. Are the shares still cheap based on their growth potential?What happens next?I think it’s safe to assume parcel volumes will continue to rise over the next few years. But I don’t expect to see a repeat of the kind of growth seen during the pandemic.The good news is that Royal Mail’s main union has agreed to support the changes needed to shift the group’s focus from letters to parcels. This will include new measures such as parcel-only hubs and dedicated parcel delivery vans.I’m pleased with this news. What worries me is that these changes could take longer to deliver and cost more than expected.The reality is that Royal Mail’s core UK business isn’t very profitable. Last year, the group’s GLS parcels business generated 64% of adjusted profits. My analysis suggests the results will be similar this year, even though GLS revenue is only half that of Royal Mail.Press reports have suggested GLS could be sold. This would provide funds for modernising Royal Mail. However, I think selling GLS would also reveal the weak profitability of the core UK business. I’m not sure if I’d want to own shares in Royal Mail without GLS.Royal Mail share price: what I’m going to doThe stock’s recovery has taken Royal Mail’s share price back to where it was in September 2018. Looking ahead, analysts expect earnings growth to continue over the coming year. Their estimates value the shares at about 13 times forecast earnings, with a possible dividend yield of 2.8%.That may seem like good value at first glance, but I’m not convinced. In my view, Royal Mail still has a lot to prove. I see the shares as fair value at the moment, but that’s not enough to convince me to buy. There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it! Roland Head 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. I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. Royal Mail’s share price is rising. Should I buy the stock now? See all posts by Roland Headlast_img

Leave a Reply

Your email address will not be published. Required fields are marked *