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The Royal Mail share price outperformed the FTSE 100 in 2020

Alan Oscroft
·3-min read
Hand arranging wood block stacking as step stair on paper pink background
Hand arranging wood block stacking as step stair on paper pink background

Those who bought Royal Mail Group (LSE: RMG) shares at the start of 2020 have done very well indeed this year. While many FTSE 100 stocks are still way down, the Royal Mail share price has gained 40% as we approach Christmas.

It wasn’t always this good during the Covid-19 crisis. Back in April, Royal Mail shares had plunged by 45%, continuing the slide that has been going on for years. But that means some Royal Mail investors have done even better. Those who were fortunate to get in right at that bottom have seen their investment grow more than two and a half times.

But why did that sudden turnaround kick off in April? I think it took that long for the market to get over two things. One was the sudden panic that led to hordes of investors selling off shares and piling into gold. That so-called flight to safety carried on and pushed the price of the precious metal to over $2,000 per ounce by August.

Online shopping winners

I also think people feared that companies would be indiscriminately punished by the downturn. That clearly wasn’t the case, and some shares were even going to do well out of the pandemic. Royal Mail was among them. And, though the company had its own working practices hampered by Covid restrictions, parcel volumes have soared.

As locked-down shoppers deserted the high street, so the fortunes of online sellers dramatically improved. And that, in turn, provided a serious boost for Royal Mail and for other parcel carriers. Apart from local food shopping, almost everything I’ve bought this year has been ordered online.

Investors might have feared that other carriers will chip away at the Royal Mail share of the market. But I’d estimate that around 90% of everything I’ve received this year has still come from our local postie in his little red van.

Royal Mail share price, long-term

But Royal Mail shares are still down 30% over the past five years, so what about the long-term future for the company?

The biggest threat has been through adapting working practices to keep up with the competition. That includes streamlining operations, cutting costs, and getting up with technology. The unions have been unhappy about the treatment of employees, and negotiations have been rather fraught at times.

But it really does sound like we’re getting past that now, and Royal Mail does seem to be upping its game significantly.

On top of that, I really don’t think the 2020 upsurge in online shopping is going to reverse. It might fall back a little. But many have been forced to try online shopping for the first time, and they like it.

I think we might see some weakness in the medium term as there’s still work to be done. But I’m optimistic over the long-term future for the Royal Mail share price.

The post The Royal Mail share price outperformed the FTSE 100 in 2020 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 2020