Sabre has had an impressive run over the past six months as its shares have beaten the S&P 500 by 26.2%. The stock now trades at $3.58, marking a 32.6% gain. This run-up might have investors contemplating their next move.

Is there a buying opportunity in Sabre, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

We’re glad investors have benefited from the price increase, but we don't have much confidence in Sabre. Here are three reasons why there are better opportunities than SABR and a stock we'd rather own.

Why Do We Think Sabre Will Underperform?

Originally a division of American Airlines, Sabre (NASDAQ:SABR) is a technology provider for the global travel and tourism industry.

1. Weak Growth in Airline Bookings Points to Soft Demand

Revenue growth can be broken down into changes in price and volume (for companies like Sabre, our preferred volume metric is airline bookings). While both are important, the latter is the most critical to analyze because prices have a ceiling.

Sabre’s airline bookings came in at 92.8 million in the latest quarter, and over the last two years, averaged 14.1% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

2. Cash Burn Ignites Concerns

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.

While Sabre’s free cash flow broke even this quarter, the broader story hasn’t been so clean. Over the last two years, Sabre’s demanding reinvestments to stay relevant have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 1.5%, meaning it lit $1.52 of cash on fire for every $100 in revenue.

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Sabre burned through $3.00 million of cash over the last year, and its $5.04 billion of debt exceeds the $689.8 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Sabre’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Sabre until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

Sabre falls short of our quality standards. With its shares beating the market recently, the stock trades at 44.6× forward price-to-earnings (or $3.58 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. Let us point you toward Meta, a top digital advertising platform riding the creator economy.

Stocks We Like More Than Sabre

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