So far today (28 October), the FTSE 250 stock with the largest gains is Trainline (LSE:TRN). At 375p, it’s up almost 10%, rocketing higher as soon as the stock market opened. There was some key news that triggered this move, with my gut feeling telling me that the party isn’t over yet.
A strong update
First let’s get to the news. Trainline released a trading update this morning. It detailed that “following a strong start to H2, the company is today revising upwards its previously stated guidance range”. In terms of specifics, it now expects revenue growth for the full year of 11-13%. This contrasts to the previous expectation of 7-11%.
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This is primarily being driven by higher net ticket sales. The forecast here was upgraded from the previous 8-12% growth range to now being 12-14%.
The actual fiscal H1 results will be released in early November (covering the period from March – August). This should give a more detailed breakdown of business operations, as well as expanding on the guidance change from the trading update.
The share price reaction
Any time a company releases a positive update like the one just out, the stock should rally. This is because the goal posts have shifted with regards to profitability. One factor that influences the share price is earnings per share. All things being equal, if earnings (or the forecast for earnings) rises, the share price should increase as well.
The jump today means that the stock is up 52% over the past year, a very strong performance. Yet at 375p, it’s still a long way off the levels above 500p that we saw back in early 2020. After taking a hit during the pandemic, it’s now in a position of growth, fuelled by investment in the digital side of operations, which has made the app the most downloaded rail travel app in Europe.
Its CEO stated recently that the rail sector “is set to benefit from increased investment in high-speed rail, greater consumer awareness of its environmental benefits, and growing demand from travellers for digital tickets.” This could help to fuel a future share price rally into next year and beyond.
Risk and potential
One risk is that industrial action can threaten to disrupt operations in future. I felt this personally over the past year, as I’m sure many others did! Cancellations and disruption are part of dealing with trains, but Trainline can unfortunately get stuck in the middle when these problems arise.
Yet on balance, I’m thinking about buying Trainline shares. I believe the trading update today shows that the business is growing at a significant pace. Due to its digital investment, it should be able to scale effectively in the future without too many growing pains, I feel.
