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Over the past year, it has gone full steam ahead to Train line (LSE:TRN). The share price is up 27% (although it is still 39% below its 2019 listing price).
However, shares are down 9% year to date.
The company said today that its revenue in the 12 months to the end of February was well above the prior-year period and also the equivalent figures before the pandemic.
But given the movement in stocks over the past year, has that good news been fully priced in yet? Stocks have moved slightly lower in early trading as I write on Wednesday morning.
strategic opportunities
I see reasons to be happy about the opportunities that lie ahead for the business.
Demand for travel has recovered in a big way. In today’s business statement, Trainline spoke of a “strong resurgence” in net ticket sales and added that he sees ”first signs of a new step forward in the coming year”.
The European side of the business is also an exciting area for me.
Trainline’s UK consumer segment remains the largest, accounting for 53% of revenue last year. But international consumer revenue has skyrocketed 228% year-over-year and now accounts for 14% of revenue.
Meanwhile, the B2B Solutions The division increased revenue 66% year-over-year, though it’s still marginally below its pre-pandemic level. If Trainline can continue to grow the business in the UK while rolling out its model across Europe, that could create a lot of value for the company, in my opinion. I think the Solutions business could also grow more.
income not profit
However, Trainline’s share price has been stagnant of late. Investors may recognize that the commercial potential has been apparent for a long time, but now is the time to show that it can be realized.
After all, Trainline has never made a profit since its listing. Until the final results are released in May, we won’t know if there was another loss or a break in the black last year.
Right now, the company has a market capitalization of £1.2 billion. That seems high to me given the company’s revenue and lack of profitability. I have my doubts whether ticketing will ever be a hugely profitable business. It requires a large investment in technical infrastructure, but the commission that many train passengers are willing to pay to a ticketing agent (if any) tends to be quite modest.
There are other risks, too. Business travel is still “subjected”, according to the company. I think some pre-pandemic business travel patterns may be gone forever.
I am also afraid that, as an agent, Trainline may find itself squeezed by transport operators who continue to sell their own tickets directly. Ultimately, you need them more than they need you.
In the correct way?
So while I still see potential in the business, that was true on listing day 2019, but it has steadily bled red ink ever since.
In order to justify Trainline’s current share price, I think the company needs to show that it can consistently turn a profit. It hasn’t done so yet, so I won’t be adding the stocks to my portfolio.
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