This FTSE 250 stock is up 10% today! Here's why I think there's more to come
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Until now (October 28), the FTSE 250 the stock with the biggest dividends A train line (LSE:TRN). At 375p, it's up almost 10%, peaking as soon as the stock market opens. There was some important news that led to this move, where my gut felt that the party wasn't over.
A solid review
Let's get into the news first. Trainline issued a trading update this morning. It explained that “Following a strong start in H2, the company is today revising and raising its previously stated range”. According to the data, it now expects full-year revenue growth of 11-13%. This is against previous expectations of 7-11%.
This is primarily driven by high ticket sales. The forecast here has been upgraded from the previous growth range of 8-12% to now 12-14%.
The actual H1 financial results will be released in early November (covering the period from March – August). This should provide a more detailed explanation of business performance, and an extension of the change in direction from the trading update.
Stock price reaction
Whenever a company issues a positive update like the one that just came out, the stock should rally. This is because goalposts have changed in terms of profitability. One factor that influences share price is earnings per share. All things being equal, if earnings (or forecasted earnings) go up, the share price should go up as well.
Today's jump means the stock is up 52% over the past year, a very strong performance. However at 375p, it is still a long way from the over 500p levels we saw in early 2020. After retiring during the pandemic, it is now in a growth mode, fueled by investment in the digital side of operations, which has paid off. make the app the most downloaded train travel app in Europe.
Its CEO recently revealed that the railway sector “It is set to benefit from increased investment in high-speed rail, consumer awareness of its environmental benefits, and growing traveler demand for digital tickets.” This could help fuel the upcoming share price rally next year and beyond.
Danger and power
Another risk is that industrial action could threaten to disrupt operations in the future. I've heard this firsthand over the past year, as I'm sure many others have! Cancellations and disruptions are part of dealing with trains, but Trainline can unfortunately be caught in the middle when these issues arise.
However on balance, I am thinking of buying Trainline shares. I believe that the trading update today shows that the business is growing at a significant pace. Thanks to the digital investment, it should be able to scale successfully in the future without too many growing pains, I feel.
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