The National Express share price is rising: should I buy now?

The National Express share price rose about 50% in the past year. Royston Roche discusses the company’s fundamentals, including its results.

| 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.

The National Express (LSE: NEX) share price has been on an upward trend in the past year. It has outperformed both the FTSE 250 index and its competitor, Stagecoach.

The company has restarted operations in the UK from 29 March. Here, I would like to analyse the stock further to see if it’s a good opportunity to buy now.

The bull case for the National Express share price

The company’s revenue growth was steady pre-Covid-19. Revenue grew at a compounded annual growth rate of 12% from 2015 to 2019. In 2020, revenue fell by 29% year-on-year to £1.96bn. However, in the first two months of the year, revenue grew by 17%, after which operations were disrupted by the lockdown.

The company has a geographically diversified business. Even though the company is domiciled in the UK, it derives around 80% of its revenues globally. ALSA (bus and coach services in Spain, Morocco, and Switzerland) grew 23% y-o-y in the first two months of the year. It was primarily helped by new contracts in Morocco and good growth in Spain. North America revenue growth was boosted by new contracts and also the acquisition of WeDriveU.

National Express was also able to win profitable contracts beating its smaller rivals in the past year. This could help the company to further increase its market share. It also has a strong base of contracted revenue. I like revenues from contracts as they tend to be stable.

One of the main reasons for me to like National Express is the free cash flow generation. In 2019, the company had free cash flow of £179m. Free cash flow was negative for 2020 due to the pandemic; however, it was free cash flow positive in the second half of the year.

The bear case for the National Express share price

The company’s operations are severely affected by lockdowns across the globe. Revenue and profits might take a hit this year too. The company reported a loss per share of 14.6p for 2020. The median analyst’s earnings per share for the year 2021 is 5.94p. However, actual performance might differ from analysts’ estimates.

Next, due to work-from-home and travel restrictions, the business might not return to normality in the next few months. The company is targetting car users to use coaches as it will reduce pollution. However, unless the frequency of the buses is high, people might still prefer cars in the UK. 

Looking into the balance sheet, the company raised debt last year. The debt-to-equity ratio increased this year. In my opinion, it is not very high. However, if the business environment does not return to normality, then this is a bit of concern.

Final view

I like the company due to the strong fundamentals. The revenue growth was good pre-Covid-19. It had stable free cash flows. However, I will wait to buy the stock, since the company’s revenue might take some time to pick up due to the lockdown restrictions.

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

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Is now the time to buy BP shares? Here’s what the charts say

The best time to buy shares in a company is when they’re trading at a discount. But the future is…

Read more »

Investing Articles

Here’s how I’d use £50K to aim for a million when the stock market crashes

Seeing a stock market crash as a buying opportunity could prove lucrative for a well-prepared, long-term investor. Christopher Ruane explains…

Read more »

Stack of one pound coins falling over
Investing Articles

It’s up 27% with a P/E of 9! I’m considering the potential of this blossoming penny stock

Despite several years of losses, this UK penny stock has an impressive valuation. I’m looking to see if it could…

Read more »

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »