Trainline: A Hidden Gem in the Rail Tech Sector, Ready for a Re-Rating

Harrison BrooksFriday, May 30, 2025 7:08 am ET
73min read

Trainline (LON:TRN), the UK's leading rail ticketing platform, is sitting on a compelling combination of undervalued shares and accelerating financial momentum. With a stock price near its one-year low and a valuation that lags behind its growth trajectory, now is the time to position for a potential re-rating.

Financial Fundamentals: Growth and Margin Expansion Take Center Stage
Trainline's recent results underscore a company transitioning from a high-growth tech firm to one balancing scale with profitability. Full-year 2025 revenue surged 11% to £442.1 million, while net income skyrocketed 72% to £58.3 million, lifting the profit margin to 13%—a significant improvement from 8.6% in 2024. Earnings per share (EPS) more than doubled to £0.13, exceeding analyst forecasts by 2.5%.

The Q1 2025 results maintained this momentum, with an EPS of GBX 19.20 and a net margin of 8.57%, despite macroeconomic headwinds. While the stock has dipped 7.6% over the past week, its valuation metrics now offer an attractive entry point. With a price-to-earnings (P/E) ratio of 36.1 and an enterprise value-to-EBITDA (EV/EBITDA) of 7.6x, Trainline trades at a discount compared to its growth profile.

Valuation: A Discounted Gem in a Growing Market
Analysts at Berenberg and others argue that Trainline's multiples are unjustifiably low given its strategic position in rail tech and improving fundamentals. The company's EV of £1.6 billion, driven by £442 million in revenue and £159 million in adjusted EBITDA, suggests it is undervalued relative to peers. While peers in transportation and logistics (e.g., LTL and software-driven logistics firms) trade at EV/EBITDA multiples of 3.5–5.5x for smaller firms, Trainline's scale and profitability justify a premium. Its Rule of 40 score of 32% (combining revenue growth and EBITDA margin) positions it among peers with strong growth trajectories.

The stock's current price of GBX 263 is 43% below its average price target of GBX 457.50 from analysts, who highlight its potential as a private equity acquisition target. With £154 million already returned to shareholders via buybacks and £81 million in forecasted 2025 free cash flow, management is signaling confidence in the business's future.

Growth Drivers: AI, International Expansion, and Operational Leverage
Trainline's AI-driven initiatives, such as its smart travel assistant and dynamic pricing tools, are key to maintaining its edge. In Spain, where its business tripled in two years, the company is proving its ability to replicate UK success internationally. Domestically, its dominance in the UK rail ticketing market (handling 40% of all bookings) provides a stable cash flow base.

The company's focus on operational efficiency is also paying off. Gross margins have expanded as it shifts to higher-margin digital sales, reducing reliance on traditional distribution channels. Meanwhile, its liquidity remains robust, with £76.8 million in cash and an adjusted EBITDA of £159 million cushioning near-term risks like the 2026 convertible bond repayment.

Risks, But Manageable Ones
High debt-to-equity (49.07%) and Google's algorithm changes (which impacted web sales) are valid concerns. However, the company's leverage ratio of 0.52 and stress tests modeling a 15% EBITDA drop suggest it can navigate these risks. The potential competition from a government-backed rail app is a long-term uncertainty, but Trainline's user-centric platform and first-mover advantage provide a strong defense.

Conclusion: A Buy at These Levels
With a stock price near its one-year low and a valuation that doesn't yet reflect its margin expansion or international growth, Trainline offers a compelling risk-reward proposition. Analysts' average price target implies a 74% upside, while the company's buyback program and cash-rich balance sheet reinforce its ability to create shareholder value.

Historically, buying Trainline five days before quarterly earnings announcements and holding for 20 trading days has delivered strong returns. From 2020 to 2025, this strategy generated a 46.09% return, outperforming the benchmark's 99.02% return over the same period. While the strategy experienced a maximum drawdown of -28.82%, its Sharpe ratio of 0.30 suggests a moderate-risk profile, offering investors a disciplined approach to capitalize on earnings-related momentum.

The time to act is now. Trainline's fundamentals are aligning with its valuation, and with private equity interest rising, this could be the last chance to buy before the market catches up.

Action: Buy Trainline (LON:TRN) at current levels. Target GBX 400 by year-end.