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Why I think now is a good time to buy this FTSE 250 UK tech share

Michael Baxter
Train travelling through countryside

When Trainline (LSE: TRN) issued its trading update at the end of last year, the reaction from the press and analysts was largely positive. Given that revenue was up 26% and international revenue increased 90%, this was hardly surprising. Despite this, shares tumbled. I think this has created a good time to jump on board the Trainline express. 

Trainline’s strengths 

Trainline boasts an impressive team of technology experts and has been turning heads for the way it applies agile working practices. That, coupled with its expertise and technology in online booking engines, is what makes it interesting. I like it because the technology is good, and its ability to develop the technology is proven.  

The story of the Trainline share price, from IPO to today 

The company floated last June. There are usually good reasons, as Warren Buffett himself has pointed out, to be reluctant to buy at the time of an IPO. There is plenty of evidence to back this idea up. Consider, for example, the fortunes of Aston Martin since its IPO. But, it is not always the case. The cheapest that shares in Alphabet/Google have ever been was at IPO. Trainline could be another exception to the rule. 

In fact, shares in Trainline surged at IPO, at one point up by a fifth. Then the inevitable happened.There was a stock market reaction.

Since 17 December, when the trading update was released, shares have fallen from 520p to 469p. Sure, they are still higher than the IPO price — 411p — but they may fall further before recovering.

These things are impossible to predict exactly, but I believe that Trainline shares are in fact on a journey heading north, with just the occasional short-term reversal en route.

Why did the Trainline share price fall?

How do we explain the fall in the share price? The company underestimated the cost of the IPO, meaning that the company made a loss in its first half. However, we knew about that last September, a long time before Trainline shares fell so sharply.

Another reason for the fall lies with the recent announcement that Virgin Rail, squeezed out of the train operation business, is launching its own train booking system. Markets may have chosen to ditch the shares because of news of a potential competitor, but Trainline was never going to have the UK train booking business to itself forever. 

Also, Trainline has responded with a split ticketing option, enabling travellers to book two or more tickets on the same journey at a saving.

Bigger fish, a bigger ocean creates the opportunity 

Trainline’s strength lies in its ability to build on its technology and generate business overseas, coupled with the potential to eventually diversify into other sectors, such as a booking engine for car sharing. 

In the longer run, Trainline’s competitors won’t just be companies like Virgin Rail in the UK, they will be companies with their own booking engines across the globe, for trains and all other forms of transport. The Ubers of this world are also in this space.

Trainline operates in a market with enormous potential, which is why I like its chances.

The post Why I think now is a good time to buy this FTSE 250 UK tech share appeared first on The Motley Fool UK.

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Matt Baxter 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.

Motley Fool UK 2020