What a fantastic six months it’s been for American Express Global Business Travel. Shares of the company have skyrocketed 40.9%, hitting $9.42. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy American Express Global Business Travel, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is American Express Global Business Travel Not Exciting?
We’re happy investors have made money, but we’re sitting this one out for now. Here are three reasons why there are better opportunities than GBTG, plus one stock we’d rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within software, a stretched historical view may miss recent innovations or disruptive industry trends. American Express Global Business Travel’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 12.5% over the last two years was well below its five-year trend. 
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 59% gross margin over the last year. That means American Express Global Business Travel paid its providers a lot of money ($40.99 for every $100 in revenue) to run its business.
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 improve by 0.5 percentage points over the last 2 years, which is slightly better 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.
Analyzing the trend in its profitability, American Express Global Business Travel’s operating margin decreased by 3.7 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 2.7%.
Final Judgment
American Express Global Business Travel isn’t a terrible business, but it doesn’t pass our quality test. Following the recent surge, the stock trades at 1.5× forward price-to-sales (or $9.42 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. We’d suggest looking at one of our all-time favorite software stocks.
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