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The last time I covered Rolls-Royce (LSE:RR) was mid-January when its shares were trading for exactly £3.
Back then I was discussing whether its shares could reach £4.50 by the end of 2024. I concluded by saying this was too optimistic.
However, just under two and a half months since then, its shares have continued their upward trajectory, rising 42.3% to hit £4.22.
A six-month return of 92.1% makes it one of the best investments during that period.
Why has Rolls-Royce stock been so successful?
By looking at its annual report, we can begin to understand this increase.
In terms of the income statement, revenue increased from £12.7bn in 2022 to £15.4bn in 2023. Even more impressive was the pre-tax profit, which increased six-fold, from £206m to almost £1,300. million pounds.
The balance sheet also showed splendid improvement. Free cash flow more than doubled, from £505m to almost £1.3bn. While net debt fell from £3.3bn to less than £2bn.
These are very good results that help explain the parabolic rise.
The only negative aspect, however, is the company's dependence on the broader economy. It has recovered well from the pandemic, but a similar economic shock could be detrimental to the company. This is especially true for sales of civil aviation engines, its largest source of income. Demand for this is largely outside Rolls-Royce's control.
This stock has been quietly emulating Rolls-Royce.
When I think of Rolls-Royce, I remember Train line (LSE:TRN).
Shares of the digital train and coach technology company have also risen 41.2% in the last six months.
However the FTSE 250 The company hasn't received nearly the same amount of attention.
As with Rolls-Royce, I am concerned about its dependence on the broader economy. It has also recovered considerably from the pandemic.
But another economic shock could spell trouble for the company. In addition, we must also reflect on its dependence on railway companies and the competition of transporters.
However, I think there are many reasons to be excited about the company.
Trainline increased net ticket sales by 22% in 2023, from £4.3bn to £5.3bn. This translated into revenue growth of 21%, from £327 million to £397 million.
The company also has enormous international potential. For example, combined net ticket sales in Italy and Spain increased by 43%.
Considering its net ticket sales in Europe are still just £1bn compared to £3.5bn in the UK, there is a huge growth opportunity for it to tap into the larger European market.
Now what?
The hype around Rolls-Royce has boosted its stock seemingly endlessly. It's a great company, however, I think most of the good news is already priced into its stock at this point.
Meanwhile, Trainline has generated returns that most investors would be incredibly happy with. But not at the same pace as Rolls-Royce.
This surprises me since both are growing at similar levels. Trainline is also the most downloaded rail app in Europe and is well placed to take advantage of the shift towards electronic train tickets.
I think its shares still have more room to go, with the potential to generate Rolls-Royce-level returns on top of the impressive returns they have already generated. Therefore, if I had extra money, I would buy some of its shares today.
