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I last wrote about Rolls-Royce (LSE:RR) price in early July. It was going for around £4.60 at the time. I came to the conclusion that its shares will remain close to this mark until the end of 2024.
How wrong I was. Its shares have grown by around 20% since then, at a price of £5.55 at the time of writing (30 October).
Since the start of the year, its shares are up 86%.
If I had invested in early 2023, I would have had a return of 495%.
Obviously the best investment that could have been made at that time.
What has been driving up the stock price?
To explain the growth of the share price, we just need to look at its results for the half year of 2024. Rolls-Royce has been experiencing strong growth for a while now. For example, its profit before tax almost doubled to £1.04bn in the first half of 2024 from the same period in 2023.
In addition, the company is involved in exciting projects. The Czech Republic company was recently chosen by Rolls-Royce for its small modular reactor (SMR) system. This market is expected to be worth £295bn by 2043. This shows that the company has opportunities for continued growth, which helps to drive up its share price.
This FTSE 250 company can emulate such a recovery
The problem with investing in Rolls-Royce right now is that it is becoming a very risky investment. It currently trades at a forward price-to-earnings (P/E) ratio of 28, which means its shares are overpriced.
Because we have so much optimism already, its shares can appear fragile if there is bad news. For example, further escalation of conflict in the Middle East could affect oil prices, which could harm the broader economy and corporate earnings.
That’s why I turned my head to A train line (LSE:TRN).
I FTSE 250 the company returned a solid but excellent return of less than 20% by 2024.
However, a forward P/E of 22 makes its shares very cheap.
But I think there are many other reasons to love the company besides this.
Remarkably, it grows very well. In its latest half-year results for FY25, the company saw its ticket sales rise by 14% year-on-year to reach £3bn. Furthermore, this translated into revenue growth of 17% to reach £229m.
There are also world powers. This is evidenced by encouraging growth in Spain and Italy, which saw ticket sales increase by 23%.
I am concerned about the company’s dependence on carrier competition, however. Trainline services are made redundant when carrier competition is low. Therefore, if competition decreases in the railway sector, its business may be at risk.
Now what?
Trainline is growing well and is actually the most downloaded train system in Europe. I also believe that as the shift to digital train tickets as opposed to paper tickets continues, the company can experience rapid growth going forward.
That’s why I see it producing Rolls-Royce-level restorations over time. That is why I will continue to buy its shares.
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