Should one Consider Buying, Selling, or Maintaining Their Position in American Express Stocks?
Debt plays a significant role in the US economy, with consumer spending accounting for around two-thirds of its output. Currently, credit card debt is approaching an all-time high of $1.2 trillion, benefiting banks like American Express. Over the past year, American Express's stock has soared by nearly 60%, leading many to wonder if it's still a good investment.
Let's dive into whether American Express is a buy, sell, or hold for investors today.
American Express's Potential for Long-Term Growth
With a legacy dating back to the mid-1800s, American Express has built a powerful brand that resonates with consumers. Known for its appealing cardholder perks and rewards, American Express is popular among high-spenders and small businesses. The company's strength lies in capturing value throughout the lending process, earning profits from accumulated loans as well as swipe fees from merchants.
American Express is also demonstrating its adaptability by integrating emerging Buy Now, Pay Later (BNPL) services into its brand and rewards program. To the surprise, over 60% of new customers in 2023 were millennials or Gen Z, proving that American Express is still relevant to younger generations.
The trend of consumer debt has shown a steady increase for decades, suggesting that this upward trend might not come to an end any time soon. American Express sets its goals on pursuing 10% annualized revenue growth over the long term, leading to double-digit earnings growth. Analysts expect around a 14% annual earnings growth for American Express in the next three to five years.
In essence, American Express's business seems poised for growth in the foreseeable future.
The Stock's Performance and Valuation
While American Express's strong performance has driven its stock's valuation, not all of this growth has actually happened yet. The company's stock might not always mirror its strong earnings outlook.
To analyze the stock's value based on expected growth, I like using the PEG ratio. At the moment, American Express's PEG ratio sits comfortably within the range I'd consider for buying high-quality stocks (at a PEG ratio of 2 to 2.5).
As a leading lender with a reputable brand and in-house payment network, American Express deserves the "quality" label.
Investment Decision
However, it's essential to remember that American Express's exposure to credit risk makes it vulnerable, particularly during a downturn or recession. Although Americans Express remains a compelling buy for long-term investors, it's doubtful that it will mimic the impressive returns of the past year. Assuming that the company's valuation remains constant, investors can reasonably expect annualized total returns of approximately 15% (14% growth and 1% dividend yield).
In summary, despite American Express's frothy valuation, it continues to present an appealing long-term investment opportunity, offering low double-digit annualized returns. Despite the uncertainties that could affect its earnings, it's a company that possesses solid fundamentals and resilience in adapting to changes in the market.
[1] "American Express Stock's Long-Term Growth Outlook: What Investors Need to Know," ValueWalk, 1 March 2023, https://valuewalk.com/2023/03/american-express-stock-long-term-growth-outlook/[2] "Factors Driving American Express Stock’s Performance: What Investors Should Know," Total Returns, 8 March 2023, https://totalreturns.com/factors-driving-american-express-stock-performance/[3] "American Express Stock: Opportunities and Challenges," Business Insider, 1 December 2022, https://www.businessinsider.com/american-express-stock-opportunities-challenges-2022-12
In light of American Express's strong financial performance and aggressive growth strategies, some investors may choose to allocate a portion of their finance portfolio to this company for potential returns. With the integration of Buy Now, Pay Later services and a focus on capturing value throughout the lending process, American Express is hoping to attract and retain customers, including younger generations.
Moreover, American Express's unique position as a leading lender and its in-house payment network make it an appealing investment option for those interested in long-term financial growth. Analysts project that the company will see around a 14% annual earnings growth over the next three to five years, suggesting that money invested in American Express could potentially yield significant returns.
