Decoding Sabre Corp (SABR)'s Performance Potential: A Deep Dive into Key Metrics
Long-established in the Travel & Leisure industry, Sabre Corp (NASDAQ:SABR) has enjoyed a stellar reputation. However, it has recently witnessed a daily loss of 6.23%, juxtaposed with a three-month change of 17.52%. Fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Sabre Corp.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
Financial strength rank: 3/10
Profitability rank: 5/10
Growth rank: 1/10
GF Value rank: 4/10
Momentum rank: 8/10
Based on the above method, GuruFocus assigned Sabre Corp the GF Score of 61 out of 100, which signals poor future outperformance potential.
Snapshot of Sabre Corp's Business
Sabre Corp, with a market cap of $1.27 billion, is a key player in the global distribution system for air bookings, holding the number-two share. The company's sales stand at $2.77 billion, with an operating margin of -5.54%. The travel solutions segment, which accounted for 91% of total 2022 revenue, is split between distribution (70% of segment sales) and airline IT solutions (30%) revenue. The company also has a growing hotel IT solutions division (10% of revenue). Transaction fees, which are mostly tied to volume and not price, account for the bulk of sales and profits.
Financial Strength Analysis
Sabre Corp's financial strength indicators present some concerning insights about the company's balance sheet health. The company has an interest coverage ratio of 0, which positions it worse than 0% of 565 companies in the Travel & Leisure industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Scoreis just -0.33, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.15 indicates a struggle in handling existing debt levels. Furthermore, the company's debt-to-Ebitda ratio is 155.38, which is above Joel Tillinghast's warning level of 4 and is worse than 99.66% of 581 companies in the Travel & Leisure industry. Tillinghast said in his book Big Money Think's Small: Biases, Blind Spots, and Smarter Investing that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Profitability Analysis
Sabre Corp's low Profitability rank can also raise warning signals. Sabre Corp's Operating Margin has declined over the past five years ((-170.80%)), as shown by the following data: 2018: 14.53; 2019: 9.14; 2020: -74.06; 2021: -39.40; 2022: -10.29. Additionally, Sabre Corp's Gross Margin has also declined over the past five years, as evidenced by the data: 2018: 28.81; 2019: 24.24; 2020: -30.11; 2021: -3.28; 2022: 15.77. This trend underscores the company's struggles to convert its revenue into profits.
Growth Prospects
A lack of significant growth is another area where Sabre Corp seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -18.6 per year over the past three years, which underperforms worse than 79.26% of 757 companies in the Travel & Leisure industry. Stagnating revenues may pose concerns in a fast-evolving market. Lastly, Sabre Corp predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given Sabre Corp's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. While the company has a rich history in the Travel & Leisure industry, its current financial indicators and growth prospects suggest that it may struggle to maintain its past performance. As value investors, it's crucial to consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
This article first appeared on GuruFocus.
