Trainline shares are up 25%. Here’s what I’d do

Trainline shares are up about 25% in the past six months. Royston Roche analyses the company to see if it’s a good fit for his portfolio.

| 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.

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.

Trainline (LSE: TRN) shares had a successful initial public offering in 2019. However, the shares dropped along with other stocks in February last year due to Covid-19 fears. The stock has been on an upward trend in the past few months. It rose about 25% in the past six months. 

The UK is in the first stage of lockdown easing. With the reopening of the schools and decreasing Covid-19 cases, there is a lot of optimism in the market. FTSE 250 stocks are one way to benefit from the trend. I would like to evaluate Trainline shares today. 

Bullish reasons to buy 

Trainline is the preferred app when buying train tickets. It is very convenient and the features are excellent. In recent times, more and more transactions are moving online. Trainline has benefitted from this trend.

The company has been at the forefront in using modern technology. More specifically it is using artificial intelligence to give its customers the best prices and experience. It has a 4.9/5 star app rating, which indicates the level of customer satisfaction.

The company has also introduced innovative features. Crowd alerts are one among them. It is a crowdsourced feature, which helps you see if certain parts of the train are busy. SplitSave is another feature wherein you split your long journey ticket into two or more parts on the same train to save money. I believe the company will introduce more of these high-tech features in the coming days.

The company’s revenues have been hit badly this year due to Covid-19. Revenue for the fiscal year 2021 fell by 74% year-over-year (y-o-y) to £67m. Net ticket sales were £783m, compared to £3.7bn for the same period last year. I looked at the results pre-Covid-19 to get a better picture. In the previous year, revenue grew by 24% y-o-y and also had good cash flows. 

This FTSE 250 company has done well in reducing its operating expenses. Its average monthly cash burn is approximately £5m, which is below the company’s previous guided range of £8 to £9m. The company’s liquidity position is also strong. After the recent issuance of convertible bonds, its liquidity position increased to about £260m.

Risks to consider 

Trainline has a dominant position in the online train booking at the moment. However, other companies might come up with a similar app. This could negatively impact the company’s shares. Google is one company that might want to integrate Google maps with train and other transportation-related businesses.

Train and coach travel might take a longer time to reach pre-Covid-19 levels. Many companies have moved to work-from-home for their employees. Another reason is that the economy will take time to fully recover the lost business. People might also want to postpone their holiday plans this year. Lastly, the company’s debt has increased in the past year. This is a bit of a worrying factor if the cash flows don’t improve this year. 

Final view on Trainline shares

Trainline is an innovative company with good growth prospects. However, I feel the shares have moved a lot taking into consideration the current uncertainty in the travel industry. I would wait for more time to get better clarity on the travel industry. 

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.

Royston Roche 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

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »