We recently compiled a list of the 10 Best NASDAQ Penny Stocks To Invest In. In this article, we are going to take a look at where Sabre Corporation (NASDAQ:SABR) stands against the other NASDAQ penny stocks.
Penny stocks are companies that are trading under $5 per share. They represent a unique and controversial segment of the financial market. Penny stocks are known for their low market capitalization, limited liquidity, and high volatility. While penny stocks can offer significant returns for investors, they are full of risks that often make them unsuitable for the average investor. Moreover, penny stocks are more prone to scams such as pump-and-dump schemes, chop stocks, and reverse mergers. We discussed these scams in detail in our article on the best books on penny stocks.
Despite the risks, penny stocks also come with huge advantages. One of the biggest advantages of penny stocks is their potential for massive gains even with a small increase in price. For example, a $1 stock rising to $2, provides a 100% return on investments, which makes them perfect for investors with high risk tolerance.
Assessing the Favorability of Current Market Conditions for Small-Caps
On July 15, Tom Lee, Fundstrat Global Advisors co-founder and head of research discussed the recent rotation of funds from large-cap stocks into small-cap stocks and expressed optimism about their potential rise, in a CNBC interview. The Russel 2000 small cap index is up 11.55% higher between July 9 and 16. He believes the current rally, which began last week, could be more substantial than the October to December 2023 rally that saw a 27% gain in the small-cap index over eight weeks. Lee attributed this rally to larger institutional short positions and even more oversold conditions, in addition to lower valuations, with median P/E ratios now at 10 times 2025 earnings. He predicts a 40% rise over ten weeks, further fueled by the June CPI data indicating softer inflation, which could lead the Fed to cut rates by September.
Regarding the S&P 500, Lee expects July to be positive and expects the broader market index to possibly reach 5700-5800 (0.6% to 2.3% increase from July 16 levels). However, he expects a more pronounced rotation into small caps in August, potentially leading to flat or slightly declining performance for the broader market. He noted that during the previous small-cap rally, large caps underperformed, and he expects a similar dynamic this time, given the significant current short positions against small caps. If Lee’s prediction holds, penny stocks, which account for a significant number of penny stocks, could prove to be attractive investments.
However, if we look at the broader market apart from the penny stocks, AI has been driving the NASDAQ but market participants have raised concerns about a potential AI bubble. This sentiment is shared by Jefferies analysts, Jim Covello from Goldman Sachs, and David Cahn from Sequoia Capital, among others. These analysts are showing skepticism about AI’s economic impact and suggesting that AI may not deliver substantial returns to justify its high costs. Jefferies highlighted difficulties in AI monetization and noted that global investments in AI servers are expected to range from $400 billion to $500 billion between 2023 and 2025, with high power costs adding to the challenge. The firm emphasized that considerable AI revenue is required for a satisfactory return on investment. While current AI stocks are supported by solid cash flows, unlike during the dot-com bubble, the market may see a correction if monetization goals are not met by 2025 or 2026.
On a positive note, other analysts such as Joseph Briggs of Goldman Sachs are optimistic about AI’s potential. They project that generative AI could automate a substantial portion of tasks, leading to significant productivity and GDP growth over the next decade. Despite high current expenditures, some analysts believe the investment in AI is comparable to past technology cycles. They argue that companies linking AI investments to revenue growth are being rewarded, indicating that the investments may pay off in the long run. While there are short-term challenges like chip shortages, the broader adoption of AI could positively impact various sectors, including utilities, in the future. Finally, the potential for AI to transform industries and drive efficiency remains high, with the possibility of future advancements that could justify current spending.
Our Methodology
For this article, we identified around 90 penny stocks listed on NASDAQ with Buy or better analyst ratings and market capitalizations of over $300 million. We narrowed down our list to 10 stocks based on multiple but different metrics such as future growth prospects, valuations, and analysts’ ratings and comments. We listed the stocks in ascending order of their hedge fund sentiment which was taken from Insider Monkey’s database of over 900 elite hedge funds.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An international traveler consulting the company’s app on their smartphone, illustrating their successful online marketplace.
Sabre Corporation (NASDAQ:SABR)
Share Price as of July 12: $3.12
Number of Hedge Fund Holders: 23
Sabre Corporation (NASDAQ:SABR) is a software and tech company that runs through the Travel Solutions and Hospitality Solutions segments. The company offers a range of software technology products and solutions through software-as-a-service (SaaS) and hosted delivery models in the travel industry. The company’s travel distribution platform caters to travel suppliers, including airlines, hotels, and others, as well as clients like agencies and corporations.
It is one of the largest global distribution systems (GDS) providers for air bookings. Through its global distribution system, Sabre (NASDAQ:SABR) connects travel suppliers such as airlines and hotels with travel sellers like agencies that offer real-time availability and pricing which are crucial for corporate travel management.
Sabre (NASDAQ:SABR) is thriving in the distribution industry, as it showed strong growth in Q1 2024 with its market share expanding consistently for the fifth consecutive quarter. The company is tackling the complexities of today’s travel market with advanced distribution solutions.
The company’s multi-source platform is a standout, and now features content from 20 new low-cost airlines. The platform integrates new distribution capabilities with the company’s own APIs and business logic, which allows airlines to effectively manage their inventory and pricing strategies across different sales channels. The integration aims to provide customers with better choices, transparency, and efficiency when booking flights.
Sabre’s (NASDAQ:SABR) position is strong because of its strategic partnerships and enhanced capabilities. Recently, the company’s strengthened ties with Air India increased booking volumes and market reach. Essential renewals with Southwest Airlines and Alaska Airlines further solidify Sabre’s (NASDAQ:SABR) growth, as both airlines surpass industry distribution booking rates.
Management is optimistic about future prospects based on multiple factors, including a robust pipeline of upcoming business opportunities. anticipated collaborations with global airlines such as Air India, and its multi-source platform’s distribution capabilities.
Despite its current lack of profitability, the company’s strategic dominance as a GDS provider for air bookings, consistent growth, strategic partnerships with major airlines, and ongoing innovations position it favorably to capitalize on the increasing demand for travel technology solutions. The company’s strategic initiatives, including cost efficiency and restructuring efforts, are also expected to be significantly beneficial for the company.
For example, the cost reduction plan initiated in 2023 is aimed at structurally reducing Sabre’s cost base, which is anticipated to positively impact financials in 2024 and 2025. A key component of this transformation is the ongoing migration to Google Cloud, which has substantially lowered the costs involved in running their computing operations. Additionally, Sabre has successfully reduced its adjusted SG&A (Selling, General & Administrative) expenses and technology expenses by 16% year-over-year in the first quarter of 2024. The introduction of generative AI tools to approximately 800 of their software engineers has further accelerated product development and innovation, contributing to lower development costs. Moreover, the implementation of new productivity-enhancing tools and processes, including AI and automation, has improved overall efficiency. By achieving its operational cost savings targets, Sabre expects to realize an overall technology cost reduction exceeding $150 million by 2025 compared to 2023.
Additionally, Sabre’s track record in successful business segment sales, such as the sale of AirCentre for $392 million in 2022, suggests potential future divestitures that could further enhance financial flexibility and reduce debt. According to the consensus opinion of 10 analysts, the stock is a Buy and the average price target of $4.00 has an upside of 28.2% to present levels, as of July 12.
Moreover, Sabre’s (NASDAQ:SABR) guidance for 2024 and 2025 projects significant growth, with expectations of $3 billion in revenue and $500 million in Adjusted EBITDA for 2024, and adjusted EBITDA of over $700 million and free cash flow close to $200 million for 2025. If the company realizes these projections, the company’s valuation could improve significantly and add to investor confidence.
At a stake value of $126.147 million, 23 hedge funds held positions in Sabre Corporation (NASDAQ:SABR) in the first quarter. As of March 31, Fundsmith LLP is the most dominant shareholder in the company and has a position worth $52.456 million.
Overall SABR ranks 4th on our list of the best NASDAQ penny stocks to buy. You can visit 10 Best NASDAQ Penny Stocks To Invest In to see the other NASDAQ penny stocks that are on hedge funds’ radar. While we acknowledge the potential of SABR as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SABR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
