Has American Express Shares Run Too Far After Their Strong Multi Year Rally?

• If you are wondering whether American Express is still worth buying after such a big run, you are not alone. The stock has quietly become one of the market's long term standouts.
• From a last close of $375.61, AXP is flat over the last week, up about 10.1% over the past month, 25.9% year to date and 31.9% over the last year, with a 165.0% and 241.6% gain over 3 and 5 years, respectively.
• Part of this momentum reflects investors rewarding American Express for steadily expanding its premium card ecosystem and capturing more high spending customers, while also leaning into travel and lifestyle experiences that deepen loyalty. At the same time, a stronger backdrop for consumer spending and credit quality has helped shift the market's perception of risk in the company.
• Despite all that, our valuation framework scores American Express at just 1/6 on undervaluation checks. Below, we break down what different methods say about the stock's price today and finish by looking at a more holistic way to think about its value.

American Express scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: American Express Excess Returns Analysis

The Excess Returns model looks at how much profit American Express can earn above the return that shareholders reasonably demand, then capitalizes those extra profits into a fair value per share.

For American Express, the starting Book Value is about $47.05 per share, while Stable EPS is estimated at $18.38 per share, based on future return on equity forecasts from 14 analysts. That implies an Average Return on Equity of 36.21%, which is well above the Cost of Equity of $4.25 per share.

The difference between what the business earns and what investors require, the Excess Return, is estimated at $14.13 per share. Using a Stable Book Value of $50.76 per share, based on estimates from 9 analysts, the model projects how long American Express can keep generating these excess returns and converts them into an intrinsic value of about $326.81 per share.

With the stock trading around $375.61, the Excess Returns valuation suggests American Express is roughly 14.9% overvalued within this framework.

Result: OVERVALUED

Our Excess Returns analysis suggests American Express may be overvalued by 14.9%. Discover 911 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for American Express.

Approach 2: American Express Price vs Earnings

For a consistently profitable business like American Express, the price to earnings ratio is a useful way to gauge how much investors are paying for each dollar of earnings. In general, companies with stronger growth prospects and lower perceived risk can justify a higher PE, while slower growing or riskier firms typically trade at lower multiples.

American Express currently trades on a PE of about 24.9x. That is well above the broader Consumer Finance industry average of roughly 9.7x, but actually a bit below the peer group average of around 26.4x, reflecting its strong brand, premium positioning and resilient profitability.

Simply Wall St’s Fair Ratio framework goes a step further by estimating what PE the stock should trade at after accounting for its earnings growth outlook, margins, risk profile, industry and market cap. For American Express, this Fair Ratio comes out at about 19.8x, which is meaningfully below the current 24.9x. On this basis, even allowing for its quality and growth, the stock appears priced a little ahead of what the fundamentals alone would justify.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1463 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your American Express Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. This is a simple way to attach your own story about American Express to the numbers you think are realistic for its future revenue, earnings and margins, then see what that implies for fair value.

A Narrative links three things together in one place: what you believe about the business, the financial forecast that follows from those beliefs, and the fair value that drops out of that forecast, so you can clearly see how your view translates into a price.

On Simply Wall St, Narratives live inside the Community page, where millions of investors use them as an easy, accessible tool to test their assumptions and see how their Fair Value compares to the current share price. This helps them decide whether American Express looks like a buy, hold or sell.

Because Narratives are refreshed as new information comes in, such as earnings results or major news, you can quickly see how updated growth, margin or risk assumptions shift your estimate of what American Express is worth, whether you lean closer to a cautious $230 view or a more optimistic stance nearer $367.

Do you think there's more to the story for American Express? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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