Is the dirt-cheap Trainline share price a sign to buy?

Train travelling through countryside

The share price of Trainline (LSE:TRN) took a 5% tumble yesterday after releasing its interim results for 2021. This latest downward slump has pushed the stock’s year-to-date return to a mediocre -34%. However, its 12-month performance is a more welcoming 13% gain. So why were investors unhappy with these latest earnings? And is this actually an opportunity for me to buy shares at a discount? Let’s take a closer look.

A revenue bounce-back

Trainline struggled last year. With the pandemic disrupting everyone’s travel plans, the online ticket retailer saw its revenue stream evaporate seemingly overnight. Since then, the situation has improved. And with travel restrictions largely out of the picture, the business has started making a relatively rapid recovery.

In fact, despite what the fall in Trainline’s share price would suggest, the latest earnings report showed some encouraging signs. Net ticket sales jumped to £1bn versus £358m over the same period last year. That’s a 179% rise! This surging growth translated into £78m of revenue, up 151% from a year ago. Meanwhile, operating free cash flow is back in the black by a decent margin, and net losses per share have shrunk from 8.1p to 1.8p.

Needless to say, this is all quite positive. And management expects this performance to continue throughout the rest of its FY22. With a net ticket sales guidance of £2.4bn-£2.8bn for the full year, I would typically expect Trainline’s share price to be on the rise. So why isn’t it?

Investigating the falling share price

As encouraging as this latest result seems on the surface, Trainline has a long way to go. Comparing current performance against last year’s, as this report has done, is not particularly meaningful. After all, 2020 was an exceptionally bad year for the company.

A more informative approach is to compare against pre-pandemic levels, and that paints quite a different picture. Despite the significant jump in ticket sales, they’re still around half of pre-pandemic levels. The same can be said about revenue and management’s full-year guidance.

Over the long term, Trainline and its share price may return to its former glory. However, this is hardly a foregone conclusion, especially since the UK government is now entering the train ticket retail space with its new project, the Williams-Shapps plan for rail. With uncertainty arising as to when the business will complete its recovery, seeing the Trainline share price suffer on the back of this report isn’t too surprising to me.

Final thoughts

So far, management’s recent actions seem to be paying off. Even if the group is still far from returning to pre-pandemic levels, I can’t deny it’s made good progress over the last six months. Having said that, I remain untempted. There are still quite a few unknowns as to when ticket sales will return to normality or how the company intends to deal with the rising government-led competition. Therefore, while this may be a buying opportunity, it’s not one I plan on taking advantage of.

The post Is the dirt-cheap Trainline share price a sign to buy? appeared first on The Motley Fool UK.

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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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