Is the dirt-cheap Trainline share price a sign to buy?

The Trainline share price slumps on earnings, but is this a buying opportunity? Zaven Boyrazian takes a closer look at the 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.

Train travelling through countryside

Image source: Getty Images.

The share price of Trainline (LSE:TRN) took a 5% tumble yesterday after releasing its interim results for 2021. This latest downward slump has pushed the stock’s year-to-date return to a mediocre -34%. However, its 12-month performance is a more welcoming 13% gain. So why were investors unhappy with these latest earnings? And is this actually an opportunity for me to buy shares at a discount? Let’s take a closer look.

A revenue bounce-back

Trainline struggled last year. With the pandemic disrupting everyone’s travel plans, the online ticket retailer saw its revenue stream evaporate seemingly overnight. Since then, the situation has improved. And with travel restrictions largely out of the picture, the business has started making a relatively rapid recovery.

In fact, despite what the fall in Trainline’s share price would suggest, the latest earnings report showed some encouraging signs. Net ticket sales jumped to £1bn versus £358m over the same period last year. That’s a 179% rise! This surging growth translated into £78m of revenue, up 151% from a year ago. Meanwhile, operating free cash flow is back in the black by a decent margin, and net losses per share have shrunk from 8.1p to 1.8p.

Needless to say, this is all quite positive. And management expects this performance to continue throughout the rest of its FY22. With a net ticket sales guidance of £2.4bn-£2.8bn for the full year, I would typically expect Trainline’s share price to be on the rise. So why isn’t it?

Investigating the falling share price

As encouraging as this latest result seems on the surface, Trainline has a long way to go. Comparing current performance against last year’s, as this report has done, is not particularly meaningful. After all, 2020 was an exceptionally bad year for the company.

A more informative approach is to compare against pre-pandemic levels, and that paints quite a different picture. Despite the significant jump in ticket sales, they’re still around half of pre-pandemic levels. The same can be said about revenue and management’s full-year guidance.

Over the long term, Trainline and its share price may return to its former glory. However, this is hardly a foregone conclusion, especially since the UK government is now entering the train ticket retail space with its new project, the Williams-Shapps plan for rail. With uncertainty arising as to when the business will complete its recovery, seeing the Trainline share price suffer on the back of this report isn’t too surprising to me.

Final thoughts

So far, management’s recent actions seem to be paying off. Even if the group is still far from returning to pre-pandemic levels, I can’t deny it’s made good progress over the last six months. Having said that, I remain untempted. There are still quite a few unknowns as to when ticket sales will return to normality or how the company intends to deal with the rising government-led competition. Therefore, while this may be a buying opportunity, it’s not one I plan on taking advantage of.

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 considered so you should consider taking independent financial advice.

Zaven Boyrazian 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

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

2 of the best stocks to buy now with £500

I think that Berkshire Hathaway and Activision Blizzard are two of the best shares to buy today. I think they…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

I bought 10 cheap shares. Here’s what happened next

After recent price falls, we bought 10 cheap shares for extra passive income in future. This mini-portfolio offers a tasty…

Read more »

Close up view of Electric Car charging and field background
Investing Articles

Is now a good time to buy Chinese EV stocks as economic growth slows?

Chinese EV stocks tend to trade at a considerable discount to their US counterparts. And that's one reason I like…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

I’d happily start investing in today’s stock market – here’s why

The stock market has been moving up even as the economy has been looking shakier. Would our writer start investing…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Up 22% in a month! This FTSE 100 takeover target could rise further

A takeover bid for an FTSE 100 firm is big news. Here's what I'm doing about RS Group shares after…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Income shares could help me turn £300 into £500. Here’s how

Our writer believes investing in the right income shares over the long term could be lucrative. Here is his approach.

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

I bought these FTSE 250 shares for fat dividends!

These two FTSE 250 shares have gained in value since I bought them recently. But I still see these stocks…

Read more »

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

Should I buy this REIT to add to the others that pay me juicy dividends?

Jabran Khan looks closer at this real estate investment trust (REIT) and decides if he would add the shares to…

Read more »