American Express (AXP) Underperformance Amid Market Rally: Valuation Discrepancies and Strategic Rebalance Opportunities

American Express (AXP) has underperformed relative to the broader market rally in 2025, despite its robust revenue growth and profitability. This divergence raises critical questions about valuation discrepancies and strategic rebalancing opportunities. By analyzing AXP's financial metrics against industry benchmarks, we uncover a nuanced picture of its current positioning and potential for correction.

Valuation Discrepancies: A Premium with Caveats

AXP's trailing price-to-earnings (P/E) ratio of 23.05 and price-to-book (P/B) ratio of 7.06 starkly contrast with the financial services sector averages of 13.3 for P/E and 3.80 for P/B. These metrics suggest that AXP is trading at a significant premium to its peers, driven by investor optimism about its premium travel rewards business and high return on equity (ROE) of 32.4% in 2025, well above the sector's 18.5% (per CoinLaw AXP statistics). However, this premium appears disconnected from the broader credit card industry's performance, where balance growth has slowed to 6.9% year-over-year in Q3 2024 from 15% in the prior year, according to MacroTrends D/E series, signaling potential macroeconomic headwinds.

The debt-to-equity (D/E) ratio further underscores AXP's unique positioning. At 1.80 for Q2 2025 (per MacroTrends D/E series), AXP's leverage exceeds the Consumer Financial Services industry average of 1.26, indicating a risk profile that diverges from its peers. While this leverage supports its aggressive reinvestment in premium card programs, it also raises questions about sustainability amid rising interest rates and potential credit card delinquency risks.

Strategic Rebalancing: Premium Positioning and Shareholder Returns

AXP's underperformance may reflect a strategic recalibration rather than operational weakness. The company has prioritized its U.S. Consumer and Business Platinum Cards, allocating capital to strengthen its dominance in the premium travel rewards segment. This focus aligns with its high ROE and justifies the valuation premium for investors who value long-term brand equity over short-term multiple compression.

Simultaneously, AXP has maintained a robust dividend policy, signaling confidence in its cash flow resilience. The company's intrinsic value, as calculated by the McGrew Valuation Method, suggests a "Screaming Buy" status, with the stock trading below its estimated intrinsic value of $317.19 (per NYU price-to-book data). This disconnect between intrinsic value and market price hints at a potential overcorrection, particularly as AXP's revenue growth (9% year-over-year in Q2 2025, per CoinLaw AXP statistics) outpaces industry trends.

Opportunities for Rebalance

The valuation gap between AXP and its peers presents both risks and opportunities. On one hand, the company's elevated P/E and P/B ratios could face downward pressure if macroeconomic conditions deteriorate or credit card delinquencies rise. On the other, AXP's strategic investments in premium segments and disciplined capital allocation position it to outperform in a recovery. Investors may benefit from monitoring AXP's ability to sustain its high ROE while managing leverage, particularly as the Federal Reserve's interest rate trajectory remains uncertain.

Conclusion

AXP's underperformance amid the 2025 market rally reflects a valuation premium that is both justified and precarious. While its financial metrics outshine industry averages, the company's strategic rebalancing toward premium segments and shareholder returns could drive a re-rating if macroeconomic risks abate. For investors, the key lies in balancing AXP's long-term growth potential with near-term volatility.