So, after its impressive rise, and current dip, would Royal Mail be a good buy for my portfolio today? Let’s take a look.

Why has the Royal Mail share price fallen in 2022?

One of the reasons for the fall in price this year is due to the delivery delays the business was experiencing last month. Staff shortages due to the pandemic, as well as high demand around the Christmas period, meant customers nationally were not getting their post on time.

However, the share price stabilised after the release of its Q3 update in late January. Where, although domestic parcel revenue rose compared to pre-pandemic levels, it missed the mark when compared to 2020 figures.

Would I buy?

So, should I be buying the stock? Well, one factor that draws me to Royal Mail is the strides the firm is taking regarding restructuring and streamlining. As my colleague Zaven Boyrazian highlighted, Royal Mail announced its plans to cut 700 managerial positions through the company. While this is without doubt unpleasant for the impending ex-employees, the move is expected to provide £40m in annualised savings from 2023 onwards.

In the short term, this move will come at a cost. The price of sacking these employees could reach £70m. And, as such, Royal Mail has cut operating profit guidance from £500m to £430m. This impact on the firm’s profits may have negative connotations for the Royal Mail share price for the foreseeable future.

Yet, another factor that attracts me to Royal Mail is its low price-to-earnings (P/E) ratio. The business currently has a P/E of under five. And compared to its global rival FedEx (12.3), this tells me that Royal Mail is currently undervalued.

I also like the direction Royal Mail is taking with its GLS division. Management has plans to increase the size of the division, with a target of increasing its operating profits to €500m by 2024-2025. Last year it acquired Canadian firm Rosenau Transport to help meet this aim.

With this said, it must be noted that this expansion has the potential to be costly, and should it fail to meet these targets this could incur big costs for the business. This would most certainly hurt the Royal Mail share price.

Nevertheless, I like the direction the firm is taking. And should it be able to execute these moves effectively, I think we could see a rise in the Royal Mail share price. The business is currently undervalued. And although it may face headwinds in the near future, as it streamlines its operations, I think in the future this will pay dividends. As such, I would be willing to add Royal Mail to my portfolio today.

The post The Royal Mail share price is down nearly 20% this year! Is it a good buy? appeared first on The Twelfth Magpie.

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Charlie Keough 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.

This is not the first time TNT Express has drawn admiring glances from its sector rivals, the firm having been the subject of a €5.2bn takeover bid by United Parcels Service two years ago. But while UPS failed in its bid due to competition concerns from the European Commission, FedEx’s relatively low continental footprint should allow it to hurdle such qualms relatively comfortably.

Parcels sector set to explode

Fedex’s move today comes as no surprise, and I expect consolidation across the sector to ramp up a notch or two in the coming months and years. Although TNT Express continues to suffer the effects of intense competition — total revenues slipped 3.2% in 2014, to €6.7bn — the promise of surging package volumes looking ahead should turbocharge turnover growth.

Indeed, total parcel traffic is likely to head northwards as the popularity of internet shopping clicks through the gears, helped by technological innovations like purchasing on mobile devices and improved services by retailers.

And with improving macroeconomic conditions in TNT Express’ core European marketplaces boosting consumer spending power — latest data showed eurozone retail sales rise 3.7% on-year in January, the biggest jump for nine years — the stage is set for the top line to bulge at many of Europe’s major shippers.

Could Royal Mail be next?

All of this bodes well for British courier giant Royal Mail (LSE: RMG), whose own European operations continue to deliver the goods. Its General Logistics Systems division provides ground-based services in more than 37 countries, and operates out of more than 650 depots spanning key European markets including Germany, France and Italy.

Royal Mail saw both revenues and volumes from this arm advance 8% in the nine months to December. And while its UK operations saw volumes edge a more modest 3% higher during the period — a performance that caused revenues to flatline — the London firm noted that activity had picked up substantially in recent months.

And like TNT Express, Royal Mail has undergone significant restructuring in recent times, measures which the business expects to provide cost savings of around £70m per year from next year. As well as promising to underpin strong earnings growth in coming years, I believe that this transformation package could also make Royal Mail itself an attractive target for potential suitors.

The post Why Fedex Corporation Inc’s Takeover Of TNT Express NV Makes Me Want To Buy Royal Mail PLC appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.