Is American Express (AXP) a Buy Ahead of Its Earnings Report Amid Strong Fundamentals and Market Outperformance?

American Express (AXP) has long been a bellwether for consumer spending and financial services, and its upcoming Q4 2025 earnings report on January 30, 2026, has drawn significant investor attention. With recent quarterly results exceeding expectations and a robust revenue growth trajectory, the question looms: Is AXP a compelling buy ahead of its earnings, or does its valuation suggest caution?

Strong Fundamentals and Guidance

AXP's Q3 2025 performance underscored its resilience. The company reported earnings per share of $4.14, surpassing the $3.98 consensus estimate by 4.02%, while revenue surged 11% year-over-year to $18.43 billion. This outperformance has led to upwardly revised guidance, with AXP now targeting 9–10% revenue growth for 2025 and long-term EPS growth in the mid-teens range. Analysts project Q4 2025 EPS of $3.56, a 17.1% increase from the $3.04 reported in the same quarter of 2024, suggesting continued momentum.

The company's focus on spend and fee-driven growth, as highlighted by its CEO during the Q1 2025 earnings call, has insulated it from broader economic headwinds. Despite rising rewards and customer engagement costs, AXP's ability to maintain pricing power and expand its merchant network positions it as a leader in the financial services sector.

Valuation: A Premium to Industry Averages

However, AXP's valuation metrics tell a different story. The stock currently trades at a price-to-earnings (P/E) ratio of 24.7x significantly above the financial services sector's average of 11.33. Similarly, its price-to-book (P/B) ratio of 7.5x dwarfs the industry average of 3.80, indicating a substantial premium to peers. Analysts suggest AXP is overvalued by approximately 15% relative to its intrinsic value, with price targets ranging from $255 to $425, averaging $335.55 according to market forecasts.

This premium reflects confidence in AXP's long-term growth prospects but raises concerns about short-term overvaluation. While the company's fundamentals justify a premium, the gap between its current price and intrinsic value suggests caution for investors seeking immediate returns.

Market Sentiment and Historical Performance

Historical data reveals a mixed pattern for AXP around earnings announcements. Over the past 12 quarters, the stock has fallen in the immediate aftermath of 8 reports, despite an average one-day post-earnings gain of 0.9%. For instance, Q3 2025's 8.16% pre-market surge was followed by a pullback, illustrating the volatility inherent in earnings-driven trading.

Pre-earnings sentiment has also been cautious. Analysts have slightly reduced EPS growth forecasts to 17.76% and revenue growth to near 10%, while insider selling in the past three months has raised questions about management's confidence. Conversely, a 5.20% decline in short interest hints at improving sentiment, as short sellers reduce their bets against the stock.

Risks and Considerations

The primary risk for AXP lies in its valuation. While the company's fundamentals are robust, its P/E and P/B ratios suggest it is trading at a level that may not be fully supported by near-term earnings growth. Additionally, rising costs-particularly in rewards and customer acquisition-could pressure margins, tempering future performance as analysts note.

Investors must also weigh the historical volatility around earnings. AXP's mixed post-earnings performance underscores the unpredictability of market reactions, even when results exceed expectations. For example, Q1 2025's earnings beat was accompanied by a pre-market stock dip, highlighting the influence of broader market dynamics and investor psychology.

Conclusion: A Cautious "Hold" with Long-Term Potential

In assessing AXP as a pre-earnings buy, the evidence points to a nuanced conclusion. The company's strong fundamentals and guidance justify optimism about its long-term trajectory, particularly in a sector where consumer spending remains resilient. However, its valuation premium and historical volatility suggest that investors should approach with caution.

For those with a long-term horizon, AXP's earnings report could present an opportunity to assess whether the company's fundamentals can justify its current valuation. Yet, for short-term traders, the risks of overvaluation and post-earnings volatility may outweigh the potential rewards. Analysts' consensus "Hold" rating aligns with this view, emphasizing that while AXP's growth story is intact, the immediate outlook requires careful monitoring.

In the end, AXP's earnings report will likely serve as a litmus test for its ability to sustain momentum in a competitive landscape. Investors should treat the upcoming release as a data point rather than a green light, balancing optimism with prudence.