Contemplate Purchasing American Express as Its Value Dips Below $315?
American Express, or AXP as it's known by its ticker, has been on a roll, racking up a staggering 154% total return for shareholders over the past five years. And with the company currently trading at record levels, it's tempting to jump in while it's still relatively affordable, right? Let's dive a little deeper.
Unique in its Field
American Express occupies a unique spot in the financial services industry. It's known for its premium credit cards, which offer perks and rewards that lure in consumers. By doing so, it effectively becomes a lender, taking on credit risk in the process. But that's not where its story ends.
The company also operates a closed-loop payment platform, connecting its cardholders with merchants to facilitate transactions. This means it can collect fees from merchants for its essential service. This dual role adds to its value as a business, relying on its strong brand image and network effects to stay ahead.
Simple Growth Strategy
So, how does American Express keep this momentum going? It's all about three simple strategies: adding more cards, raising fees, and growing economic growth.
American Express had 145.5 million cards in force as of September 30, 2024, an increase of 5% from the previous year. This growth mainly came from younger generations, including Gen-Z and millennials. The company also has the power to raise its annual fees for its credit cards, further boosting its annual revenue.
Add in the natural economic growth over time, and you've got a recipe for success. American Express also benefits by forming partnerships with airlines, hotels, and retailers, which incentivizes spending and further bolsters its network.
Challenges Ahead
Of course, no investment is without its risks. An economic downturn could put a damper on Amex's growth, as consumers may cut back on spending. Competition from other card issuers, like JPMorgan Chase and Capital One, could also pose a threat to its market dominance.
But history suggests that American Express has what it takes to weather any storm. It has steadily expanded over the years, and it's well-positioned to continue that trend.
Now, Amex trades at about $313 per share, a richer valuation than it had just last year. With a P/E ratio of 23, it may be wise to dollar-cost average into a full position over several transactions, taking advantage of various price points along the way.
Investing in American Express could yield substantial returns, given its strong financial performance and growth strategies. Over the past five years, the company has delivered a 154% total return to shareholders, suggesting a promising outlook for those interested in finance and investing money.
To maximize returns, strategically investing in American Express might involve dollar-cost averaging into a full position over several transactions, taking advantage of price fluctuations in the stock market. This approach can help mitigate potential risks and maximize long-term returns, as the company continues to implement its successful growth strategies.