Should You Consider Amex After Its Five-Year 229% Rally and Recent Market Dip?

Thinking about what to do with American Express stock these days? You are not alone. Over the past five years, this classic financial powerhouse has proven it still knows how to deliver, notching an eye-popping gain of 229.5%. Even just looking at the last three years, the stock price is up 146.9%, rewarding loyal holders. Yet, the road has not been a straight one. After a strong run-up, a recent dip of -3.3% over the past week has some investors asking if this is just a brief pause or the start of a bigger shift in sentiment. Over the past month, shares rose 1.2%, and they are still comfortably higher for the year at 10.7% year to date. These are impressive numbers that suggest growth potential, even as the overall market digests changing views on interest rates and economic resilience.

Despite these solid returns, the burning question remains: is American Express undervalued at current levels? When we run the stock through our six-point valuation checklist, it scores just a 1, meaning the company screens as undervalued in only one area out of six. That low valuation score will raise eyebrows for anyone looking for a hidden bargain. Still, raw numbers never tell the whole story on their own, and there is more nuance to valuation than a single score can show. So let us break down each of those valuation approaches, and then, at the end, I will reveal what I believe is a much smarter way to think about whether American Express is a buy, hold, or sell right now.

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 is designed to assess how much profit a company generates above its cost of equity, relying on the idea that some businesses can consistently deliver superior returns on the money investors supply. For American Express, this approach highlights the company’s ability to convert its equity base into substantial earnings.

Currently, American Express holds a book value of $46.42 per share and is expected to sustain stable earnings per share (EPS) of $18.21, according to weighted future Return on Equity estimates from 13 analysts. With an average Return on Equity of 35.59%, the company is generating returns far above the estimated cost of equity, which stands at $4.30 per share. That leaves an excess return of $13.91 per share, a significant spread that underscores powerful profitability and resilience. The stable book value is forecasted to edge higher, reaching $51.17 per share, based on future estimates from 9 analysts.

Plugging these figures into the Excess Returns Model produces an intrinsic value for American Express that is 5.7% below the current share price. This suggests the stock is a little rich but not dramatically so. The stock appears to be trading just above its estimated fair value, meaning that, at today’s prices, investors are essentially paying full price for its healthy economics.

Result: ABOUT RIGHT

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

Simply Wall St performs a valuation analysis on every stock in the world every day (check out American Express's valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: American Express Price vs Earnings

The Price-to-Earnings (PE) ratio is widely recognized as a relevant metric for valuing profitable companies like American Express because it directly ties a company’s stock price to its actual earnings. For consistently profitable firms, the PE ratio helps investors gauge whether a stock is being offered at a reasonable price relative to what the business actually generates in profit.

However, growth rates and risk play a large role in determining what PE ratio is considered fair. Higher expected earnings growth and lower risk typically justify a higher PE, while slower growth or higher risk would mean a lower, more conservative PE is appropriate. This is why it is important not to rely solely on simple comparisons.

Currently, American Express trades at a PE ratio of 22.9x. This is well above the Consumer Finance industry average of 10.1x and below the average for its closest peers at 30.1x. While this could make American Express appear expensive by one measurement and less expensive by another, it does not tell the full story.

This is where Simply Wall St’s proprietary “Fair Ratio” is relevant. The Fair Ratio, which is 21.3x for American Express, is a more tailored benchmark that factors in growth prospects, operating risks, profit margins, business size, and the company’s sector, rather than simply comparing against broad industry averages or any one competitor. Because it is customized, it is a better reflection of what is reasonable for a company with American Express’s strengths and risks.

Overall, American Express’s PE is just slightly above the Fair Ratio, suggesting that the shares are trading for about what they are worth given expectations 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 a clear, approachable story you create around a company’s future, grounded in your beliefs about its prospects for revenue, earnings, and margins. This story then links directly to your financial forecast and an assumed Fair Value.

Narratives make investing more personal by allowing you to combine the numbers with your own perspective, helping you look beyond simple ratios and see the bigger picture of a company's opportunity or risk. On Simply Wall St’s Community page, trusted by millions, Narratives are straightforward, interactive tools where you can set your forecasts, compare your Fair Value estimate to the current share price, and decide whether to buy, hold, or sell, all while learning from the diverse views of other investors.

Best of all, Narratives stay dynamic and automatically update as new information, such as earnings or news, comes in. This keeps your view of a company current and actionable. For example, when it comes to American Express, some investors see real upside, believing fair value could be as high as $366.63, while others are much more cautious, seeing potential risk and setting their fair value closer to $230.00.

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

• 🐂 American Express Bull Case

  Fair Value: $366.63

  Discount to Current Price: -9.9%

  Forecast Revenue Growth: 11.1%

  • Expansion is set to be driven by younger, affluent customers and premium product innovation, which supports global growth and diversified earnings.
  • Investments in technology and B2B platforms are expected to improve customer retention and efficiency, as well as boost SME revenue, underpinning resilient profitability.
  • Main risks include digital wallet disruption, rising competition from fintechs, structurally higher funding and operating costs, and potential regulatory headwinds.
• 🐻 American Express Bear Case

  Fair Value: $329.62

  Premium to Current Price: +0.2%

  Forecast Revenue Growth: 10.5%

  • Growth is driven by a focus on premium cardmembers, acquisition of a younger demographic, and international expansion, supported by credit quality and a disciplined capital strategy.
  • Profitability faces threats from intensifying competition, evolving consumer payment preferences, and elevated costs, which highlight American Express's reliance on US market maturity.
  • Consensus sees the stock as close to fairly valued with limited immediate upside, while ongoing innovation and disciplined risk management support longer-term value.

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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