It has certainly been a high speed journey for shareholders in Trainline (LSE: TRN). Since March, the Trainline share price has increased 138%. Over the past 12 months, the growth has been 12%.
Is it worth me hopping aboard at this point?
Signal points
The first thing about this price movement that strikes me is that despite more than doubling in just a few months, Trainline shares have not moved up dramatically versus a year ago. In other words, they fell a long way then rose again. So, what has happened since March that helped turn investor sentiment around so dramatically?
In March, the company informed the market that annual revenue had grown by triple digits in percentage terms last year. That set the wheels in motion in the City, with investors expecting the final results to show impressive recovery.
A couple of months later, those annual results delivered. Revenue was up 181% compared to the prior year, while the basic loss per share fell 87% to 2.5p. Cash flows turned positive again, to the tune of £166m, while net debt fell over three-fifths to £90m.
Full steam ahead
That was a far better performance than the preceding year. The company provided a further upbeat trading update this month. It announced that revenue is expected to grow at least 22% this year compared to the company’s last financial year before the pandemic.
The company also said that it is seeing “faster than anticipated recovery in rail passenger volume across Europe”. That is good news, although the international division only accounted for 11% of sales last year. Getting a full head of steam in the UK business is a more pressing priority, in my view.
Next stop for the Trainline share price?
The business has strong momentum and is clearly in recovery mode. However, it still made a loss last year and commands a market capitalisation of £1.8bn, putting it on a price-to-sales ratio of over nine using the latest full-year revenue figures.
On a fundamental valuation basis, I think the Trainline share price already looks expensive. The company remains loss-making and may need to spend heavily if it wants to keep scaling up its infrastructure for international expansion. The business model means Trainline is a middleman. Train operators could switch to use a different ticket broker. An unexpected slowdown in demand outside Trainline’s control, as seen during the pandemic, could badly hurt revenues overnight — as it did then.
The company has spent years developing an attractive platform and it could benefit from ticket industry consolidation in years to come, adding scale cost-effectively. But I do not like the underlying business model and feel the price tag for the firm is too high.
All aboard?
The market may see things differently. The shares have rallied very strongly on a few pieces of upbeat news. If demand recovery remains strong, there could be more news to cheer the market. That may push the Trainline share price up further.
But I think other companies have more attractive business models. I will not be adding Trainline to my portfolio.
