American Express Global Business Travel has had an impressive run over the past six months as its shares have beaten the S&P 500 by 17.6%. The stock now trades at $7.92, marking a 31.5% gain. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is there a buying opportunity in American Express Global Business Travel, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.

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

Despite the momentum, we're cautious about American Express Global Business Travel. Here are three reasons you should be careful with GBTG and a 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 as its annualized revenue growth of 5.3% over the last two years was 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 61% gross margin over the last year. That means American Express Global Business Travel paid its providers a lot of money ($38.97 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 3.6 percentage points over the last 2 year, which is very good in the software space.

3. Operating Margin Rising, Profits Up

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 rose by 1.5 percentage points over the last two years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 5.2%.

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. With its shares topping the market in recent months, the stock trades at 1.2× forward price-to-sales (or $7.92 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are more exciting stocks to buy at the moment. We’d suggest looking at our favorite semiconductor picks and shovels play.

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