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The Royal Mail share price has climbed 50% in 2021. Is there more to come?

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Scene depicting the City of London, home of the FTSE 100
Scene depicting the City of London, home of the FTSE 100

If you’d asked me which shares I expected to do well in the first half of 2021, Royal Mail Group (LSE: RMG) would have escaped my notice. But my Motley Fool colleague Rupert Hargreaves got it right, after turning bullish on the stock last year. So far this year, the Royal Mail share price has climbed 54%. The FTSE 100 is up 10%.

Short-term share price movements can be deceptive, though, and it’s the longer term that counts. And looking back further, Royal Mail has been an even bigger winner. Over the past 12 months, Royal Mail shares are up a stunning 200%. The turnaround kicked off in the autumn, so it looks like Rupert got his timing right too.

The Royal Mail share price hasn’t quite regained its levels of 2018, though it’s not far behind. But while an impressive past performance is good to see, it’s well known as a pretty poor indicator of where things will go next. So what might the future hold for Royal Mail as an investment?

Postal business boost

The Covid-19 lockdowns were good for the postal business. I’ve made far more online purchases in the past 15 months, as have millions of others. And I’ve noticed one interesting thing. I’ve been concerned about the increasing competition from other parcels services in recent years. I’ve also been critical of Royal Mail’s relatively poor delivery tracking technology — while others were giving me one-hour windows for my parcels, Royal Mail could typically do no better than ‘some time before 8pm.’ But the thing I’ve noticed is that the vast majority of my purchases are still delivered by Royal Mail.

How does this translate to the financial bottom line? Full-year results are due on 20 May, and it looks like they’re going to be positive. In its last update at the end of March, the firm told us it expects adjusted operating profit of around £700m. The board also “concluded that it is appropriate to pay a one-off final dividend of 10p per share in respect of FY2020-21,” which shareholders should receive on 6 September.

That 10p represents a yield of approximately 2% on the current Royal Mail share price, which doesn’t sound impressive. But if it’s indicative of a return to progressive future dividends, there could be a lot more to come. So, would I buy now?

Watch: Prince Philip Commemorated with New Royal Mail Stamps

Royal Mail share price too high?

No, I probably wouldn’t, for several reasons. One is that I can’t help seeing the share price surge as overdone. And I think we could see a period of profit-taking and sideways movement over the rest of the year. In fact, if this month’s results don’t beat expectations, I wouldn’t be surprised to see a lot of short-term investors cut and run — and that could send the shares down again.

Over the longer term, that competition is still there and growing, even if it hasn’t taken over yet. And Royal Mail still has a strongly unionised workforce, with whom it hasn’t exactly been on the best of terms in recent years.

I’m pleased to see the recovery, but it’s not one for me at today’s Royal Mail share price levels.

The post The Royal Mail share price has climbed 50% in 2021. Is there more to come? appeared first on The Motley Fool UK.

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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.

Motley Fool UK 2021

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