By American Express (AXP) stock has done well as we predicted in our last article in April when we compared it with Mastercard and Visa. It has soared to a record high of $271.35, bringing its year-to-date high gains to almost 50%, making it one of the best-performing companies in finance.
AXP is beating some of the fastest-growing fintech companies in the United States like Affirm, Toast, and Shift4 Payments.
American Express growth is continuing
American Express is a large Warren Buffett-backed company that provides its services to thousands of customers globally.
While it is best known for its card business, its services are more different than those provided by the likes of Mastercard and Visa.
The main difference is that it mostly focuses on wealthy customers who can afford its diamond and gold cards. On the other hand, Visa and Mastercard offer their cards to customers in all wealth classes.
The other difference is that American Express has a merchant acquiring business, which handles the payments from merchants around the world. For example, it offers the OptBlue merchant-acquiring service, where third-party processors can use its network.
American Express also runs a card network business, where it partners with banks from around the world.
The company’s business has been growing in the past few years, helped by the recent Federal Reserve interest rate hikes. Its net interest income has jumped from over $8.6 billion in 2018 to over $13.3 billion last year.
It has also benefited from commissions, which have jumped from over $33.5 billion in 2019 to over $45.67 billion last year. This performance has made AXP a high-profitable company whose net income has jumped from $6.7 billion in 2019 to over $9.8 billion in the trailing twelve months.
American Express’ more complicated business model means that it has lower margins than Visa and Mastercard. Its gross margins stood at 55.8% in the last quarter while the other two have almost 100%. Its net margin is 16.9% while the other firms have a 50%.
AXP is still growing
The most recent financial results showed that American Express billed business in the last quarter came in at over $388 billion, a big increase from $365.9 billion in the same quarter last year.
Its quarterly revenue rose by 8% to over $16.3 billion while its net income jumped to over $3 billion. This growth is happening as the company continues to attract new customers, especially millennials through its higher marketing spending.
The company has also boosted its guidance, with its annual EPS expected to be between $13.30 and $13.80 while its revenue will grow by between 9% and 11%.
Good rewarder of shareholders
American Express has also been a good rewarder of shareholders through dividends and buybacks. Over the years, the number of outstanding shares has dropped from over 810 million in 2020 to 712 million.
Share repurchases are important because they help a company to boost its earnings per share (EPS). Its EPS has grown from $8 in 2020 to between $13.3 and $13.80 this year. As a result, the dividend per share has moved from $1.64 in 2020 to $2.40.
A key issue for American Express is that it often seems like it is an overvalued company. Besides, it trades at a forward P/E ratio of 21.1 and a trailing multiple of 20, higher than the industry average of 12.14 and 12.06, respectively.
However, I believe that these numbers can be justified since the company is still growing. Its recent revenue growth was about 9.62% while its forward growth metric is 10.8%. Also, it has a forward EPS growth multiple of 15, which is higher than most companies in the industry.
American Express stock analysis
AXP chart by TradingView
The weekly chart shows that the AXP share price has been in a strong bull run after bottoming at $63.11 in 2020. It has soared by over 325% in this period, bringing its total market cap to over $191 billion.
The stock has remained above all moving averages. It is about 23% above the 50-week moving average, meaning that bulls are in control. It has also remained above the important resistance point at $192.6, its highest point in February 2022.
However, the Relative Strength Index (RSI) has formed a bearish divergence chart pattern, which is often a negative sign.
Therefore, the outlook for the stock is bullish, though a short-term pullback cannot be ruled out. Besides, the average stock estimate among analysts is $254, down from the current $268.
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