Three compelling reasons to invest in American Express stock without hesitation.
American Express (AXP) is a top pick for Berkshire Hathaway's substantial equity portfolio, boasting a remarkable 153% increase in shares over the past five years (as of Nov. 26). Given its current success, you might be wondering if it's a wise choice to include this financial giant in your portfolio. Here are three compelling reasons to consider investing in American Express.
1. Robust Financial Performance
Despite a challenging economic landscape marked by high interest rates and inflation, American Express has persistently delivered strong financial results. Net revenue surged by 14% year-over-year in 2023 and then rose another 9% within the first nine months of 2024. This impressive growth was driven by a substantial increase in card member base and escalating payment volumes.
Executives have also revised their expectations, now anticipating a 24% boost in earnings per share (EPS) for the entirety of 2024. This projected EPS of $13.95 (at the midpoint) represents a 75% increase from 2019's figure.
2. Enduring Strength
American Express has proven resilience, with its longevity since the mid-1800s providing assurance for potential investors. The company boasts a substantial economic moat, making it a formidable force against competitors in the financial sector and protects it from emerging threats in the industry, like fintech startups.
Its brand power is also a significant advantage. Offerings like the Centurion Black card, Platinum, and Gold cards solidify its reputation as a premium financial services provider. This, combined with its affluent customer base, helps keep charge-off rates low while enabling periodic fee increases without deterred customer growth.
Another strength is the presence of network effects, making the American Express platform highly valuable for all parties involved. Its vast network of cardholders and merchant acceptance locations would pose an enormous challenge for any newcomer attempting to create a payment network from scratch.
3. Valuation Perspective
Paying close attention to valuation is crucial when considering potential portfolio additions. American Express shares currently trade at a price-to-earnings (P/E) ratio of 22.5, which represents a 25% premium compared to its trailing ten-year average.
However, its performance in 2024, with a robust 63% gain as of Nov. 26, may have raised prices for prospective investors. Despite this price increase, Amex's P/E ratio remains competitive with the broader S&P 500, which has its own P/E multiple of 24.7. Given Amex's high-quality stature and anticipated EPS growth, the current valuation appears reasonable.
Investor excitement about American Express's future prospects is also enhanced by consensus analyst estimates forecasting an annualized EPS rise of 15.4% between 2023 and 2026. Furthermore, its dividend yield of nearly 1% and the possibility of future valuation expansion make American Express an even more appealing investment option.
1. Wise Investment DecisionGiven American Express's robust financial performance and enduring strength, it could be a smart decision to include this finance giant in your investment portfolio.
2. Diversifying Your Finance PortfolioIncorporating American Express, with its strong financial backing and strategic position in the market, can help diversify your money investment in the finance sector.
