Over the past six months, Sabre’s shares (currently trading at $1.82) have posted a disappointing 6.7% loss, well below the S&P 500’s 34.7% gain. This was partly driven by its softer quarterly results and might have investors contemplating their next move.

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Why Is Sabre Not Exciting?

Even with the cheaper entry price, we're swiping left on Sabre for now. Here are three reasons we avoid SABR and a stock we'd rather own.

1. Weak Growth in Total 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 total bookings). While both are important, the latter is the most critical to analyze because prices have a ceiling.

Sabre’s total bookings came in at 90.3 million in the latest quarter, and over the last two years, averaged 2.7% 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.

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 4.2%, meaning it lit $4.20 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 $264.5 million of cash over the last year, and its $5.04 billion of debt exceeds the $447.1 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 isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 7.9× forward P/E (or $1.82 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at one of our top digital advertising picks.

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