Will Royal Mail shares double in 2022?

Royal Mail shares have been on fire, but can this momentum continue in 2022 and beyond? Zaven Boyrazian investigates.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

2022 new year concept image

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Royal Mail (LSE:RMG) shares have had a pretty impressive run over the last 12 months. In fact, the stock is up nearly 50%. And since January 2019, it’s basically doubled!

That’s some pretty impressive growth for a company founded in the 16th century, especially given the world fell into a pandemic during the period. So what’s behind this sudden growth spike? And can the stock double again in 2022? Let’s explore.

The momentum behind Royal Mail shares

The upward trajectory of Royal Mail shares started in 2020. While the group undoubtedly suffered significant disruption from the pandemic, it also enjoyed notable tailwinds. More specifically, the accelerated adoption of e-commerce.

With the demand skyrocketing for online shopping delivery solutions, the last three months of 2020 were “unprecedented”, according to management. And looking at the figures, I have to agree. During the quarter, the company delivered 496m parcels – the highest amount in the business’s 500-year history.

Consequently, the group’s 2021 fiscal year, spanning from March to March, saw a 16.6% jump in revenue – the highest it’s been in over five years. While the double-digit growth is impressive, it doesn’t hold a candle to what happened to the bottom line.

Combining this feat with some clever corporate restructuring, operating profits went from £141m in March 2020 to £728m the following year. That’s a 416% jump within 12 months!

Management is using the proceeds to improve the balance sheet by wiping out a good chunk of debt. At the same time, it’s expanding investments into improving delivery infrastructure, as well as international operations.

With that in mind, seeing Royal Mail shares jump 100% is hardly surprising. And if the company’s latest ventures are successful in creating long-term value, I think the stock can double once again – maybe even in 2022.

Taking a step back

I can’t deny that this business’s recent performance and renewed growth capacity is exciting. But, like any company, Royal Mail has its fair share of challenges to overcome. Most notably, competition.

The surging demand for parcel delivery solutions hasn’t gone unnoticed by other logistics firms. Plenty of competing delivery companies are ramping up operations and spending to capitalise on the opportunity. What’s more, many of these businesses aren’t riddled with interest-bearing debt chipping away at free cash flow.

Suppose management isn’t able to keep up with its more agile competitors? In that case, Royal Mail shares could start heading in the wrong direction as the company loses market share.

Time to buy?

All things considered, I think 2022 could be yet another ground-breaking year for Royal Mail shares. Looking at the most recent results, revenue is still climbing along with profits and margins.

Having said that, I’m personally not tempted to add this business to my portfolio. Why? Because I think there are even more lucrative opportunities to be found elsewhere.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Zaven Boyrazian 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.

More on Investing Articles

A couple celebrating moving in to a new home
Investing Articles

1 FTSE 250 share I’m eyeing for June

Christopher Ruane looks at a FTSE 250 company in the retail sector and explains why he's sizing it up for…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

1 iconic FTSE 250 stock I’d snap up for my ISA in June

This Fool highlights a well-known FTSE 250 share that's served up some mouthwatering returns over the past decade.

Read more »

Investing Articles

Here’s my forecast for the Rolls-Royce share price in 2024

As it continues to hit new highs, everybody seems to be asking the same question: can the Rolls-Royce share price…

Read more »

Elevated view over city of London skyline
Investing Articles

Will the once massive Direct Line dividend ever get back to its old size?

Until last year, this income stock was a high-yield heavy-hitter. Could the Direct Line dividend ever get back to where…

Read more »

Investing Articles

£3,000 in savings? I’d start investing with a Stocks and Shares ISA

For investors with cash stashed away, this Fool thinks using a Stocks and Shares ISA is the best way to…

Read more »

Mature friends at a dinner party
Investing Articles

I’d buy shares of this investment trust for my SIPP while they’re under £1

Our writer takes a look at one growth-focused investment trust in his SIPP that could generate a market-beating performance long…

Read more »

Investing Articles

The National Grid share price nosedived 21% in 2 days! Is it time to take advantage?

The National Grid share price tumbled after the company surprised shareholders by revealing plans to raise more money via a…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Dividend Shares

How I’d try to ironclad my second income before interest rates fall

Jon Smith explains a couple of tactics he's looking to implement in his dividend portfolio to try and protect his…

Read more »