Trainline shares are up 25%. Here’s what I’d do

Trainline (LSE: TRN) shares had a successful initial public offering in 2019. However, the shares dropped along with other stocks in February last year due to Covid-19 fears. The stock has been on an upward trend in the past few months. It rose about 25% in the past six months. 

The UK is in the first stage of lockdown easing. With the reopening of the schools and decreasing Covid-19 cases, there is a lot of optimism in the market. FTSE 250 stocks are one way to benefit from the trend. I would like to evaluate Trainline shares today. 

Bullish reasons to buy 

Trainline is the preferred app when buying train tickets. It is very convenient and the features are excellent. In recent times, more and more transactions are moving online. Trainline has benefitted from this trend.

The company has been at the forefront in using modern technology. More specifically it is using artificial intelligence to give its customers the best prices and experience. It has a 4.9/5 star app rating, which indicates the level of customer satisfaction.

The company has also introduced innovative features. Crowd alerts are one among them. It is a crowdsourced feature, which helps you see if certain parts of the train are busy. SplitSave is another feature wherein you split your long journey ticket into two or more parts on the same train to save money. I believe the company will introduce more of these high-tech features in the coming days.

The company’s revenues have been hit badly this year due to Covid-19. Revenue for the fiscal year 2021 fell by 74% year-over-year (y-o-y) to £67m. Net ticket sales were £783m, compared to £3.7bn for the same period last year. I looked at the results pre-Covid-19 to get a better picture. In the previous year, revenue grew by 24% y-o-y and also had good cash flows. 

This FTSE 250 company has done well in reducing its operating expenses. Its average monthly cash burn is approximately £5m, which is below the company’s previous guided range of £8 to £9m. The company’s liquidity position is also strong. After the recent issuance of convertible bonds, its liquidity position increased to about £260m.

Risks to consider 

Trainline has a dominant position in the online train booking at the moment. However, other companies might come up with a similar app. This could negatively impact the company’s shares. Google is one company that might want to integrate Google maps with train and other transportation-related businesses.

Train and coach travel might take a longer time to reach pre-Covid-19 levels. Many companies have moved to work-from-home for their employees. Another reason is that the economy will take time to fully recover the lost business. People might also want to postpone their holiday plans this year. Lastly, the company’s debt has increased in the past year. This is a bit of a worrying factor if the cash flows don’t improve this year. 

Final view on Trainline shares

Trainline is an innovative company with good growth prospects. However, I feel the shares have moved a lot taking into consideration the current uncertainty in the travel industry. I would wait for more time to get better clarity on the travel industry.