Should You Buy American Express While It's Below $300?

As an investor, you might be wondering if now is the right time to buy American Express (AXP) while its shares are trading below $300. The financial services giant has been on a roll, with its stock price soaring nearly 60% since last fall. However, some potential roadblocks exist, such as low personal savings rates and high credit card debt among U.S. consumers. So, should you follow the momentum and buy shares today, or is American Express poised for a letdown? Let's dive into the bull and bear arguments to help you make an informed decision.

Bullish arguments for buying American Express:

1. Strong financial performance: American Express reported solid underlying metrics in its second-quarter report, with net revenue growing 8% year-over-year, driven by 6% growth in billed business. This growth has slowed since the years following COVID-19, but it's still satisfactory, especially considering the economic headwinds.
2. Resilient customer base: American Express' customers are paying their bills, with late payments and defaults below pre-pandemic levels. This indicates that the company's credit card is generally seen as a premium brand, which may perform better than typical lenders in a recession scenario.
3. Solid growth prospects: Analysts estimate that American Express will grow revenue between 8% and 9% annually from this year through 2026. The company also raised its full-year earnings-per-share (EPS) guidance in Q2, indicating confidence in its business momentum.
4. Reasonable valuation: American Express shares seem reasonably priced, trading at 18 times the updated earnings guidance from management. This is on par with the company's average P/E ratio over the past decade.



Bearish arguments for avoiding American Express:

1. Economic uncertainty: The U.S. economy could still drag on American Express, despite the company's strong financial performance. A severe recession could wipe out the company's earnings growth and hurt the stock.
2. Valuation concerns: While American Express' current valuation may seem reasonable, it's close to its most expensive level in the past three years. The market has adopted bullish and optimistic sentiment toward the business, which could lead to a pullback if expectations aren't met.
3. Competition: American Express faces competition from other card issuers, such as JPMorgan Chase and Capital One. This competition could lead to difficult renewal negotiations with partners, potentially impacting the company's growth prospects.

Conclusion:

American Express is a solid position to own today, even as it chugs toward $300 per share. The company's strong financial performance, resilient customer base, and solid growth prospects make a compelling case for buying the stock. However, investors should be aware of the potential risks, such as economic uncertainty and competition. If you're willing to hold through what should be multiple years of double-digit earnings growth, American Express could be a solid addition to your portfolio. But if you're concerned about a potential economic crisis, you might want to wait for a more attractive entry point.