Is It Too Late to Consider Amex After Recent Earnings Beat and 27% Stock Surge?

Are you on the fence about what to do with American Express stock right now? You are definitely not alone. With so many eyes on the financial sector, watching for both opportunities and risks, this may be a good moment to take a closer look at what is driving this company’s share price and its underlying value. The past few years have been impressive by just about any standard, with American Express delivering a 258.3% gain over five years and a remarkable 163.2% in the past three. Even in the shorter term, the trend is positive, with a 27.4% return over the last year, 14.5% year-to-date, and a solid 6.0% jump in just the last 30 days.

Some of this bullishness comes down to market optimism around consumer spending growth and how well American Express is positioned in the evolving payments landscape. Stable economic indicators and continued demand for premium financial services keep investors engaged. However, risk sentiment has at times shifted, keeping the stock from rising higher without pause. Despite this momentum, the company’s value score sits at only 1 out of 6, suggesting it is considered undervalued by just one commonly used metric. That might leave some scratching their heads or wondering if the recent growth is already reflected in the price, or if the market is missing something.

To really decode what is happening with American Express, we will walk through some of the most widely used valuation methods. If those checks do not give the full picture, the most compelling perspective has been saved for the end of the article.

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 closely examines how efficiently American Express uses its equity to generate profits above its cost of capital. In other words, it measures how much value the company adds for shareholders compared to the minimum return they could expect elsewhere. A key strength of American Express is its strong average return on equity of 35.50%, showing it has historically been able to get a lot out of every dollar invested by shareholders.

Based on future analyst estimates, American Express is expected to reach a stable earnings-per-share (EPS) of $18.12, with a stable book value of $51.05 per share. With a cost of equity at $4.30 per share and excess return sitting at $13.82 per share, the data suggests the company can continue generating returns well above its required rate. These figures are based on forecasts by 13 analysts for return on equity and 9 analysts for book value growth.

However, when the Excess Returns model is used to estimate the company’s intrinsic value, the resulting fair value is about 10.4% below the current share price. This indicates the stock is considered slightly overvalued based on this valuation perspective.

Result: OVERVALUED

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

Our Excess Returns analysis suggests American Express may be overvalued by 10.4%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: American Express Price vs Earnings

For companies with stable profits like American Express, the price-to-earnings (PE) ratio is a widely accepted way to value the business. The PE ratio offers a direct look at what investors are willing to pay for each dollar of current earnings, which makes it a useful yardstick for comparing companies of similar size and profitability.

While a high PE ratio can signal optimism about future growth, or the safety of those earnings, it can also reflect higher risk. Conversely, a lower PE may indicate either undervaluation or caution about a company’s prospects. At the moment, American Express trades at a PE of 23.7x, which is well above the Consumer Finance industry average of 10.5x but below its listed peers, which average 29.7x.

Instead of just focusing on those market averages, Simply Wall St’s “Fair Ratio” offers a more tailored benchmark. This proprietary measure considers factors specific to American Express, such as earnings growth outlook, profit margins, risks, industry dynamics, and market cap, to estimate where its PE “should be.” For American Express, this Fair Ratio stands at 20.6x. Since this is only slightly lower than the current 23.7x, the gap is not stark. It suggests investors are more or less pricing the stock in line with its prospects and risk.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 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 us introduce you to Narratives. A Narrative is your unique story about a company, where you combine your personal perspective with key numbers such as your assumptions for future revenue, earnings, and margins to estimate what you think a stock is really worth.

This approach does not just focus on raw data but connects the company’s journey to a financial forecast and, ultimately, a fair value. Narratives are easy to create on Simply Wall St’s Community page, which is used by millions of investors worldwide. They provide a flexible tool that helps you decide when a stock like American Express could be worth considering by directly comparing your Fair Value to the current Price.

The best part? Narratives update automatically as new information comes in, whether it is fresh earnings or the latest news, allowing your perspective to stay current without extra work. For American Express, for example, one Narrative pegs fair value at around $366, suggesting the market is undervaluing the future, while another sees fair value near $230, believing expectations are too high. It is up to you to choose the story and the value you believe in.

For American Express, we’ll make it really easy for you with previews of two leading American Express Narratives:

• 🐂 American Express Bull Case

  Fair value: $366.63

  Current valuation: 6.8% below fair value

  Assumed annual revenue growth: 11.1%

  • Growth is expected to be driven by younger customers, global expansion into affluent international markets, and ongoing premium product enhancements.
  • Strategic technology investment and integrated business-to-business solutions are set to increase retention, improve margins, and diversify revenue channels.
  • Main risks include digital disruption from new payment competitors, structurally higher costs, funding disadvantages, and mounting regulatory challenges that could impact profitability.
• 🐻 American Express Bear Case

  Fair value: $322.23

  Current valuation: 6.0% above fair value

  Assumed annual revenue growth: 10.6%

  • Emphasis on premium cardmembers and product innovation, alongside expansion in younger demographics, is expected to drive retention, international growth, and earnings stability.
  • Robust credit quality and disciplined capital management contribute to margin expansion and resilience, supporting investment in products and the payments network.
  • Risks include intensifying competition, changing consumer payment preferences, higher customer acquisition costs, and greater exposure to a saturated US market for earnings growth.

Do you think there's more to the story for American Express? Create your own Narrative to let the Community know!

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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