Over the past six months, American Express Global Business Travel’s shares (currently trading at $7.84) have posted a disappointing 11.7% loss, well below the S&P 500’s 5% gain. This may have investors wondering how to approach the situation.
Is now the time to buy American Express Global Business Travel, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is American Express Global Business Travel Not Exciting?
Even though the stock has become cheaper, we're swiping left on American Express Global Business Travel for now. Here are three reasons why there are better opportunities than GBTG and a stock we'd rather own.
1. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect American Express Global Business Travel’s revenue to rise by 3.7%, a deceleration versus This projection is underwhelming and suggests its products and services will see some demand headwinds.
2. Low Gross Margin Reveals Weak Structural Profitability
For software companies like American Express Global Business Travel, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.
American Express Global Business Travel’s gross margin is substantially worse than most software businesses, signaling it has relatively high infrastructure costs compared to asset-lite businesses like ServiceNow. As you can see below, it averaged a 61.1% gross margin over the last year. That means American Express Global Business Travel paid its providers a lot of money ($38.85 for every $100 in revenue) to run its business. 
3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
American Express Global Business Travel has shown mediocre cash profitability over the last year, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5.9%, subpar for a software business.
Final Judgment
American Express Global Business Travel isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 1.5× forward price-to-sales (or $7.84 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now. Let us point you toward the Amazon and PayPal of Latin America.
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