Should I buy this hot FTSE 250 stock, up 30% in 3 weeks?

Sometimes the biggest mover in the FTSE 250 just isn’t a company I expect to see there. But this one was a pleasant surprise.

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FTSE 250 company Trainline (LSE: TRN) posted a first-half trading update on 14 September and announced a new share buyback at the same time.

The share price climbed by 15% at one point in morning trading. And that took it up more than 30% since a dip late in August.

The share price is still down 33% since Trainline’s IPO in 2019. And it’s been quite a rocky ride.

But “faster than expected growth in the first half of the year“, as the company has just revealed, might just make it one of the FTSE 250‘s top buys.

Double-digit growth

Investors buying at flotation time were a bit unlucky. They bought shares in a travel ticket company just before the pandemic stopped millions of people travelling.

But things are starting to look good now, with net ticket sales and revenues up by double-digit percentages across the firm’s divisions.

Overall, total H1 ticket sales rose by 23% compared to the same period last year. And total revenue is up by 19%.

Share buyback

CEO Jody Ford added: “Given our continued growth and the strength and maturity of our business, we are today launching a share buyback programme to begin returning capital to shareholders“.

The share buyback will reach up to £50m, and will happen over the next 12 months.

We have until early November to wait to see the effect all of this has on H1 profits. So for now, all we have to go on is forecasts.

And, though they’ve been rendered out of date by this latest news, and will surely be updated before long, they do worry me a bit.

Growth stock valuation

For the full year, the analysts have Trainline stock on a price-to-earnings (P/E) ratio of 47.

For a company that only just posted a modest profit last year, I don’t want to read too much into that. And forecasts suggest that profit before tax could treble between 2023 and 2026.

But that optimism still leaves us with a P/E of 25 as far out as 2026. And there are no dividends — the company just hasn’t progressed that far yet.

How to value?

So how can we relate a valuation to the Trainline share price?

At this stage in its journey, liquidity is surely a key factor. And I’d say a couple of things count in its favour.

The share buyback is one, clearly. If the board thinks it already has enough surplus cash to hand back that way, it says a lot about its confidence in the future.

If I were a shareholder, though, I might prefer to see the company hang on to its spare cash at least until profits start to take off. Nobody ever went bust by having too much cash.

Margins

The other thing is that this looks like a company that shouldn’t be too capital intensive, and should hopefully be able to support strong margins.

So, I’m cautiously optimistic. But I’m not seeing an obviously cheap valuation right now. I want to see those H1 results in November, though.

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.

Alan Oscroft 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.

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