Over the past six months, Sabre has been a great trade. While the S&P 500 was flat, the stock price has climbed by 6.5% to $3.45 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now the time to buy Sabre, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

We’re glad investors have benefited from the price increase, but we're sitting this one out for now. Here are three reasons why SABR doesn't excite us 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 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 80.98 million in the latest quarter, and over the last two years, averaged 10.6% 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. Breakeven Free Cash Flow Limits Reinvestment Potential

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Sabre broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.

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 $13.55 million of cash over the last year, and its $5.06 billion of debt exceeds the $745.5 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

We see the value of companies helping consumers, but in the case of Sabre, we’re out. With its shares topping the market in recent months, the stock trades at 18.8× forward price-to-earnings (or $3.45 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better stocks to buy right now. Let us point you toward one of our all-time favorite software stocks.

Stocks We Would Buy Instead of Sabre

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