The Royal Mail (LSE: RMG) share price has been one of the market’s big winners over the past few weeks. The stock crumbled to a low of around 120p in the middle of April. However, since hitting this level, investor sentiment towards the business has dramatically improved.
And as investors have returned to the Royal Mail share price, it has surged by more than 40% from the April lows. But despite this performance, the company has not reported a dramatic improvement in its underlying fundamentals.
Royal Mail share price on offer
Like many companies, the past few weeks have been an extremely turbulent time for Royal Mail. The group has suffered disruption to its operations, and, as of yet, it’s not clear what the ultimate impact of the coronavirus crisis will be on the organisation’s bottom line.
While the company has benefited from an increase in parcel deliveries in the lockdown, this hasn’t been enough to offset rising costs and declining letter deliveries.
A recent trading update noted that revenue from letters declined 23% in April, which was only partially offset by a 20% increase in parcel revenue. Overall, revenues declined £22m and costs jumped £40m in the month.
We don’t know how the business fared in May at this stage, but if the trends seen in April continued, it might be the case that Royal Mail’s revenue continued to decline.
As well as falling sales, the company also remains exposed to other risks. A second wave of coronavirus and economic uncertainty could continue to weigh on the Royal Mail share price during the second half of 2020.
Unfortunately, Royal Mail also lost its CEO. In the middle of May, the company announced that chief executive Rico Back would step back with immediate effect. Non-executive chairman Keith Williams is stepping in on an interim basis into the role.
Losing a CEO who was only with the business for two years in the middle of a crisis seems careless. The company needs a clear strategy to navigate through the crisis and rebuild over the next few years.
It is going to be challenging to set out this strategy without a fixed CEO. This uncertainty could continue to weigh on the Royal Mail share price for some time.
Setting out a plan
In the last trading update published to the market, Royal Mail declared that it would provide a further update on its long-term plan towards the end of June. With this being the case, it might be sensible to wait for this plan before taking a position in the stock.
The trading update should give investors some more background on how the company has been coping with the coronavirus crisis, and what it plans to do to reinvigorate the business and drive growth over the next few years. There might be some significant changes, and possibly even a cash call.
As such, staying on the sidelines could be a sensible strategy for the next few weeks.
