FTSE 250 smart travel firm Trainline’s (LSE: TRN) shares jumped 10% following the firm’s 5 November H1 fiscal 2025/26 results. These looked very strong to me, featuring a major upgrade to earnings growth and the extension of a share buyback.
However, the stock is still 42% below its 24 December one-year traded high of £4.46. That widens what I already saw as a big mismatch between the share’s price and its true worth.
So, is now the right time for me to buy?
UK’s and Europe’s top travel app
The H1 numbers saw net ticket sales rise 8% year on year to £3.25bn. Adjusted EBITDA climbed 14% to £93m, and operating profit surged 38% to £68m.
Free cash flow edged up 2% to £79m, while basic earnings per share jumped 54% to 11.6p.
More broadly, Trainline is now Europe’s most downloaded rail app, with 27m active users.
It also ranks as the UK’s top travel app and business-to-business rail platform, and the leading rail aggregator in Europe.
Earnings upgrade and share buyback
As a result of these figures, the firm – which uses artificial intelligence to optimise routes and ticket sales – raised its growth forecast.
It now expects year-on-year adjusted EBITDA growth of 10%-13%, up from the previous 6%-9%.
Analysts forecast Trainline’s earnings will increase by an average of 10.5% a year to the end of fiscal 2027/28.
Positive for the share price as well is the continuation of the £150m buyback programme launched on 22 September. Buybacks tend to support share price gains, and so far only £15m have been spent on this.
Where’s the growth coming from?
A key potential development remains the European Union’s ‘Fourth Railway Package’. This directs all 27 member states to open their passenger rail markets to competition.
According to Trainline, this liberalisation of routes should be worth €12bn (£10.6bn) by 2030. This is almost three times the size they are now.
To best position itself for this, Trainline is using the successful strategy it rolled out in Spain. This focused on routes with greater carrier competition, allowing it more scope to offer value from fare and timetable variations.
Using this model, its net ticket sales in Spain have nearly tripled in the past two years.
Will I buy the stock?
A discounted cash flow analysis shows that Trainline shares are a whopping 51% undervalued at their current price of £2.59. Therefore, their ‘fair value’ is £5.29.
At an earlier stage of my investment cycle, I would probably have bought the stock for this undervaluation. After all, my experience tells me that stock prices tend to trade to their true worth over time.
But now, aged over 50, I am more cautious. I see potential delays in the EU’s rollout of travel legislation, which could slow Trainline’s earnings growth. This is a risk to the early realisation of Trainline’s forecast earnings growth.
That said, this stock may be worth considering for investors at an earlier stage of their investment journey.
However, I am looking at other investing opportunities with less short-term risk and even greater long-term earnings growth prospects.
