Up 27%, is the Trainline share price now running out of steam?

Over the past year, has full steam ahead to Trainline (LSE: TRN). The stock price is up 27% (although still 39% below the 2019 listing price).

Shares have moved down 9% so far this year though.

The company said today that profits for the 12 months to the end of February were ahead of the previous year’s period and also the same pre-pandemic number.

But given the stock’s movement over the past year, has this good news been fully valued? Shares have moved slightly lower in early trading, as I write on Wednesday morning.

Strategic opportunity

I see reason to be excited about the opportunities that lie ahead for business.

Travel demand has rebounded in a big way. In today’s trading statement, Trainline spoke of “strong resurgence“on net ticket sales and added if you see”early signs of further steps in the coming year“.

The European side of the business also strikes me as an exciting area.

UK Trainline’s consumer segment remains the largest, accounting for 53% of revenue last year. But international consumer revenue grew 228% year over year and now accounts for 14% of revenue.

Meanwhile, B2B The solution The division increased profits by 66% year-on-year, although it was still below pre-pandemic levels. If Trainline can continue to grow its UK business while rolling out its model across Europe, it could unlock a lot of value for the company, in my view. I think the Solutions business can also develop further.

Revenue is not profit

However, Trainline’s share price has stalled lately. Perhaps investors think that the potential of the business has been visible for a long time, but now is the time to prove that it can be realized.

After all, Trainline has never made a profit since listing. Until the final results are published in May, we will not know whether last year saw another loss, or break into the black.

Today, the company has a market capitalization of £1.2bn. It seems high to me because of the company’s profit and low profit. I doubt whether tickets will be a profitable business. It requires a large investment in technical infrastructure but the commission many train passengers are willing to pay the ticket agent (if any) tends to be quite modest.

There are other risks as well. Business travel stays”submitted to”, according to the company. I think some of the pre-pandemic business travel patterns may be gone.

I am also afraid that, as an agent, Trainline can be squeezed by transport operators who continue to sell their own tickets directly. In the end, he needed more than he needed.

On the right path?

So, although I continue to see potential in the business, it was true on the day of the 2019 listing, but since then it has been continuously pouring red ink.

To justify Trainline’s current share price, I think the company needs to prove that it can consistently generate profits. It’s not done yet, so I won’t be adding the stock to my portfolio.