What a time it’s been for American Express Global Business Travel. In the past six months alone, the company’s stock price has increased by a massive 76.8%, reaching $9.44 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in American Express Global Business Travel, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is American Express Global Business Travel Not Exciting?
We’re happy investors have made money, but we don’t have much confidence in American Express Global Business Travel. Here are three reasons we avoid GBTG, plus one 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 7.8%, a deceleration versus its 40.3% annualized growth for the past five years. This projection doesn’t excite us and implies its products and services will face some demand challenges.
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 58.5% gross margin over the last year. Said differently, American Express Global Business Travel had to pay a chunky $41.50 to its service providers for every $100 in revenue.
The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. American Express Global Business Travel has seen gross margins decline by 0.4 percentage points over the last 2 years, which is slightly worse than average for software.
3. Shrinking Operating Margin
While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This metric shows how much revenue remains after accounting for all core expenses — everything from the cost of goods sold to sales and R&D.
Looking at the trend in its profitability, American Express Global Business Travel’s operating margin decreased by 3.8 percentage points over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 2.1%.
Final Judgment
American Express Global Business Travel isn’t a terrible business, but it doesn’t pass our bar. Following the recent rally, the stock trades at 1.4× forward price-to-sales (or $9.44 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We’re fairly confident there are better investments elsewhere. Let us point you toward the most entrenched endpoint security platform on the market.
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