Is the Royal Mail share price a FTSE 100 bargain?

The Motley Fool

The performance of Royal Mail's (LSE: RMG) share price in the last six months has been exceptional. The company has recorded a rise of around 45%, which is significantly higher than the FTSE 100's 4% gain over the same period.

However, after such a large rise, many investors will naturally wonder whether the company has further upside. After all, its valuation is now likely to be less appealing than it once was. With that in mind, is it worth buying alongside this Footsie peer which still seems to have significant recovery potential?

Positive changes

While Royal Mail's CEO recently announced plans to leave, the company seems to have a sound strategy which could lead to further long-term growth. For example, it has been able to improve its efficiency, with cost avoidance measures set to provide a boost to its overall performance. It has also pivoted towards parcel delivery at a time when demand for letters is falling. This could provide it with a stronger growth rate in future, while its international operations may also provide an increasingly robust growth outlook.

Investment appeal

Of course, the company's share price rise means that its dividend yield has been squeezed. Royal Mail now has an income return of around 4.2%, which is still above the FTSE 100's yield of around 3.9%. And with dividends being covered 1.7 times by profit, they appear to be highly sustainable at their current level.

Clearly, the company is continuing to experience an uncertain period, with management changes and political risk being high. But with a reshaped business model and a strong income outlook, it could deliver further outperformance of the FTSE 100 over the long term. As such, now could be an opportune moment to buy it.

Changing outlook

Also in the midst of implementing a refreshed strategy is emerging market-focused bank Standard Chartered (LSE: STAN). The company is expected to deliver a rise in its bottom line of 52% in the current year, followed by further growth of 22% next year. It is benefitting from strong global growth as it seeks to become a more efficient and robust operation which can better capitalise on favourable positions within fast-growing regions.

Despite its turnaround potential, Standard Chartered trades on a price-to-earnings growth (PEG) ratio of just 0.6. This suggests that it could offer good value for money. And with dividends forecast to grow by around 200% over the next two years, its forward dividend yield of 3.2% for 2019 could begin to look increasingly attractive.

Certainly, there is still some way to go with the implementation of its new strategy, while risks to global growth remain. But with a wide margin of safety, the bank seems to offer capital growth as well as income potential for the long term. As such, now could be the right time to buy it.

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Peter Stephens owns shares of Standard Chartered. The Motley Fool UK has recommended Standard Chartered. 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.