American Express Global Business Travel’s stock price has taken a beating over the past six months, shedding 29.4% of its value and falling to $5.49 per share. This 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? Get the full stock story straight from our expert analysts, it’s free.

Why Do We Think American Express Global Business Travel Will Underperform?

Even though the stock has become cheaper, we're cautious about American Express Global Business Travel. Here are three reasons why GBTG doesn't excite us and a stock we'd rather own.

1. Lackluster Revenue Growth

Long-term growth is the most important, but within software, a stretched historical view may miss new innovations or demand cycles. American Express Global Business Travel’s recent performance shows its demand has slowed as its annualized revenue growth of 8.9% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs.

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 60.1% gross margin over the last year. Said differently, American Express Global Business Travel had to pay a chunky $39.92 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 improve by 2 percentage points over the last 2 year, which is solid in the software space.

3. Operating Margin in Limbo

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales 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 might fluctuated slightly but has generally stayed the same 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 4.8%.

Final Judgment

We see the value of companies addressing major business pain points, but in the case of American Express Global Business Travel, we’re out. After the recent drawdown, the stock trades at 0.9× forward price-to-sales (or $5.49 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. We’d suggest looking at one of our top digital advertising picks.

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