The ascent of Rolls-Royce shares over the past three years has been nothing less than astonishing. A rise of 1,000% is something you’d expect to see from a whizzy Nasdaq stock, not a blue-chip engine maker from the FTSE 100.
Looking ahead though, some question just how high Rolls stock can go. City analysts’ average 12-month price target is 985p, just below the current price.
However, after gazing into their tea leaves, analysts are more bullish on the share price prospects of Trainline (LSE: TRN). The average target for this FTSE 250 tech stock is 415p — almost 55% higher than Trainline’s 271p level now. No guarantees it will get there, of course.
UK tech success story
For those unfamiliar, Trainline’s a train and coach booking app that operates across multiple European countries. The company went public in 2019, but the share price is down around 30% since then, which is disappointing.
Despite this, I see a few things I like about Trainline. First, this is Europe’s most downloaded rail app, which means many millions of consumers are choosing to use it regularly.
We’ve seen repeatedly how apps that people choose to engage with regularly can become tremendous investments. For example, unlocking my phone, I’m immediately greeted by Amazon, Booking, Netflix, YouTube (owned by Alphabet), Uber, Spotify, and Duolingo.
Here’s how these stocks have performed over one and five years.
| 1-year return | 5-year return | |
| Amazon | 25% | 42% |
| Booking | 50% | 233% |
| Netflix | 86% | 140% |
| Alphabet | 15% | 163% |
| Uber | 36% | 188% |
| Spotify | 100% | 143% |
| Duolingo | 98% | N/A (IPO in 2021) |
Trainline’s capitalising on trends such as rail liberalisation and rising digital ticket adoption, and is expanding impressively across EU markets. In Spain, net ticket sales have almost tripled in just two financial years.
Last year, revenue increased 12% to £442m, driven by strong growth in ticket sales. Operating profit rose 54% to £86m, while adjusted earnings per share jumped 56% to 19.2p. This is impressive growth.
Finally, the market-cap here is just over £1bn. That strikes me as quite low for Europe’s leading rail travel booking platform, especially if growth continues.
Dark cloud
Turning to the valuation, this also looks cheap to me. Based on forecasts for the next fiscal year (which starts in March), the forward price-to-earnings ratio here is just 12. That’s very low for a tech-focused growth stock.
Why might this be? Well, the dark cloud hanging over Trainline right now is the threat of state-backed competition. Specifically, the government’s plans to introduce a ‘Great British Railways’ ticketing platform.
Now, we don’t know exactly what will happen here, but I do worry that it will trigger commission pressure for Trainline. It currently has a 4.5% average base commission take rate in the UK (its largest market).
Between 2024 and 2028, Trainline’s expected to grow revenue at a compound annual rate of around 4.6%. Not exactly explosive, though earnings are set to grow far quicker, which probably explains the much higher share price target.
My move
Weighing things up, I suspect the stock’s undervalued, and that Trainline might even become an acquisition target at some point. On this basis, it may be worth considering, although there’s no guarantee it would be snapped up at a higher valuation than today.
Speaking personally, I use Uber for booking my train tickets these days, not Trainline. And given the uncertainty around the forthcoming Great British Railways ticketing app, I’m going to pass on this stock for now.
