American Express (AXP) Stock May Be 23% Cheap As ROE Stays Strong

American Express stock has delivered a strong 112.0% gain over the past five years, yet current valuation checks send a more nuanced message, with the Excess Returns intrinsic value estimate suggesting the shares trade at a discount while market multiples look roughly in line with peers.

• Over the past 5 years, American Express has returned 112.0%, which puts long term holders in a strong position despite more muted recent moves.
• Future card spending and credit quality can support the valuation if they hold up, while any sustained hit to customer payment activity or higher loss rates may weigh on the earnings power investors are currently assuming.
• The broader valuation workup is a mixed picture rather than a clear bargain or clear overvaluation, with the 4.0 value score set against an Excess Returns estimate that points to roughly a 22.7% discount to intrinsic value.

The issue now is whether American Express shares offer enough valuation upside relative to this intrinsic value estimate to appeal at current levels.

Scan beyond American Express and consider other potential value setups in our hand picked list of 31 high quality undervalued stocks.

Is American Express Still Cheap on Excess Returns?

The Excess Returns model examines how much profit American Express can generate above its required cost of equity and then capitalises that stream. For American Express, the inputs point to a business that earns a wide gap between what shareholders require and what the firm is projected to produce.

Book value is set at $50.79 per share, with a stable book value estimate of $58.89 per share based on analyst forecasts. Against that asset base, stable EPS of $21.47 per share and an average return on equity of 36.46% compare with a cost of equity of $4.91 per share. That leaves an excess return of $16.56 per share in the model, which feeds into an intrinsic value estimate of about $416 per share.

With the stock price implying a 22.7% discount to that Excess Returns estimate, American Express appears undervalued on this framework.

On these inputs, American Express appears undervalued relative to the excess returns it is projected to earn on its equity base.

Our Excess Returns analysis suggests American Express is undervalued by 22.7%. Track this in your watchlist or portfolio, or discover 31 more high quality undervalued stocks.

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

Where Does American Express Sit on Earnings?

The P/E ratio works well for American Express because earnings are a key anchor for how investors judge a mature payment and lending business. On this measure, the stock trades on about 19.2x earnings, which is roughly in line with the 20.2x average for its peer group in Consumer Finance.

The fair P/E multiple for American Express is estimated at 19.5x, only slightly above where the shares currently change hands. That small gap suggests the market is already factoring in the earnings profile, risk and scale implied by the model, rather than attaching a clear premium or discount compared with similar companies or the wider industry.

On the P/E test, American Express appears to be trading at roughly fair value rather than at a level that looks clearly cheap or expensive.

See what the numbers say about this price — find out in our valuation breakdown.

The American Express Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for American Express take that mixed valuation picture and spell out the specific futures that would make the stock meaningfully cheap or expensive at today’s price. Each scenario links its number to a clear view on where American Express' growth, profitability and risk profile could head next. This gives you a reference point you can return to as new results, card volumes or credit data come through on the Community page.

Community views on American Express could hardly be further apart, with one camp leaning into premium card momentum and another worried the valuation already bakes in too much optimism.

Bull case: 14% undervalued

"Sustained momentum in acquiring younger (Millennial and Gen Z) cardholders, with these groups showing strong spend growth and lower delinquency rates compared to industry averages, suggests a successful strategy in capturing the next generation of affluent consumers, which should drive future billed business and support earnings stability..."

Read the full Bull Case to see why American Express could be undervalued

Bear case: 7% overvalued

"Please remember that the fair value estimate is just a number and, probably, a very wrong number. However, overall, American Express seems to be overvalued (at least a little) at the moment..."

Read the full Bear Case to see why American Express could be overvalued

Do you think there's more to the story for American Express? Head over to our Community to see what others are saying!

The Bottom Line

American Express screens as undervalued on the Excess Returns intrinsic value work, yet the P/E check suggests the share price already lines up closely with peers. That split comes from different emphases, with the intrinsic view leaning on the durability of excess profitability and the market view reflecting what investors are currently willing to pay for that earnings profile. The crux for investors is whether American Express can keep converting its franchise strength into returns on equity that comfortably clear its cost of capital, without a material slip in card spending or credit quality.

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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