The Royal Mail (LSE: RMG) share price has risen at a blistering rate over the past 12 months. Since sliding during the broader UK share market crash of last February and March, the value of the courier’s shares have rocketed by an impressive 222%.
In fact, at recent levels just below 500p the Royal Mail share price was trading at its most expensive since summer 2018. Can the FTSE 250 stock continue to soar, however?
Good omens for the Royal Mail share price
There are a number of reasons why the Royal Mail share price could keep on climbing.
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#1: E-commerce activity is booming. Many UK shares that have exposure to the online shopping arena have performed strongly over the past year. It should perhaps be no surprise as Covid-19 lockdowns have pushed consumers online. Royal Mail is a critical part of this ecosystem. Without firms like it, retailers and manufacturers wouldn’t be able to get their products to consumers. It looks like the e-tail market is set to keep growing over the long term too. Statista reckons that internet commerce in the UK will grow at an annualised rate of almost 5% through to 2024.
#2: Investing for growth. As one would expect, Royal Mail is investing to maximise the exciting opportunities that this growing market provides. The first of four new parcel sorting machines is due to come on-line in the next couple of months. Its new Parcel Collect doorstep service also offers the chance for the company to boost packages volumes even further.
#3: Broad geographic exposure. Britain is the largest e-commerce market in Europe and the third largest in the world. However, this is not the only huge market that Royal Mail operates in. It also has considerable exposure to other large markets, like the US, Germany and France, through its GLS division.
Possible problems
That said, there are reasons why the Royal Mail share price could struggle for traction. These include restructuring problems arising. Royal Mail’s restructuring programmes of the last decade were underwhelming to say the least. News flow on this front has been more promising of late and last week the firm cut its restructuring cost estimates by a cool £50m. Union disputes have always been a thorn in the side of the courier, however, and are likely to remain so. This could cause fresh profits problems that could weigh on the Royal Mail share price.
Weak economic growth is another risk. The UK economy faces the threat of a long economic downturn due to the twin problems of Covid-19 and Brexit. Royal Mail is highly geared to the economic environment, meaning that volumes of its parcels and letters could suffer amid a broad downturn. Naturally this would also hit the bottom line
In conclusion…
There’s no guarantee that the Royal Mail share price will keep soaring. But I think the exploding e-commerce market still makes the courier an attractive UK share for long-term investors like me. I’d happily add it to my own Stocks and Shares ISA today.
