American Express is a financial services company that provides credit cards, charge cards, and other financial products to consumers and businesses. ( AXP 2.35% ) Over the last five years, there has been a total return of 102%, exceeding the returns of the previous period. S&P 500 index.
However, at the time of writing this. stock market finances The stock is currently trading 6% below its highest price ever. Consider purchasing at this lower price point.
Prior to proceeding, consider the highest-ranked option. bull and bear Reasons supporting American Express.
Amex bull case
American Express holds a prominent position in the financial industry due to its strong brand. This has played a key role in its achievements. The company’s premium cards such as Centurion, Platinum, and Gold come with high yearly charges, attracting wealthy customers who are willing to spend more. With top-tier rewards that appeal to this customer segment, American Express has been able to increase its card fees without hindering its growth.
Additionally, Amex is considered a less risky investment due to its popularity among affluent customers. The company’s default rates are consistently lower compared to other credit card providers, leading to reduced financial losses.
Similarly to Visa and Mastercard American Express runs a payment system with 144 million cards that can be used at numerous merchants, making it a strong force in the industry. The phenomenon where the value of a product or service increases as more people use it. Businesses desire customers who hold American Express cards because they see great advantages in allowing these cards to be used for transactions. Furthermore, cardholders benefit from having more options for making purchases, thus increasing their convenience.
One of the main optimistic arguments revolves around the impressive financial results of American Express. From 2013 to 2023, revenue grew by 84%, while diluted earnings per share (EPS) surged by 130% over the same period.
Despite the economic uncertainty, the positive trend from last year has continued into this year. Executives are forecasting a double-digit increase in revenue and EPS for this year. The growth is attributed to robust international operations and the addition of new cardholders, especially from younger demographics.
Amex bear case
Like all businesses in this field, one challenge is the high level of competition in the financial services industry, particularly in the credit card sector. Despite Amex’s strong market presence, there are alternative choices available.
JPMorgan Chase , along with its Sapphire Reserve card, as well as Capital One The Venture X card from Capital One is giving tough competition to the American Express Platinum Card. Both companies are actively seeking valuable partnerships to attract customers, ensuring that the competition will remain intense.
Although Amex has demonstrated strong financial results, the company is susceptible to cyclical trends. This is a typical scenario for financial institutions that provide loans and rely on strong consumer spending for profitability. It is evident that Amex would face challenges during a significant economic downturn.
The valuation can be seen as a bearish argument, depending on how much importance you give to it. At the moment, the shares are trading at a price-to-earnings ratio (P/E) of 17.7, which is similar to Amex’s average P/E ratio of 17.9 over the past ten years. Ideally, investors would prefer a lower valuation multiple as it offers more potential for growth. The current P/E ratio limits the upside potential. A margin of safety refers to the difference between the actual value of an asset and its intrinsic value, providing a cushion against potential losses. .
Should one consider purchasing American Express stock?
Both the positive and negative viewpoints are undoubtedly convincing. It is crucial for investors to comprehend both perspectives regarding any company they are considering or already have in their portfolio. This applies to Amex as well.
I continue to see this stock as a good choice for investment. While the shares may be considered fairly priced, the company’s excellence is evident.
