HomeBusinessShould You Buy American Express While It's Under $315?

Should You Buy American Express While It’s Under $315?

American Express (NYSE:AXP) remains a winning position for shareholders. The total return of 154% over the past five years is certainly exceptional. And there’s no shortage of reasons to appreciate this high-quality company.

At the time of writing this is Dow Jones Industrial average partial transactions at record level. Should you buy American Express while the price is below $315 per share?

American Express holds a special place within the broader financial services industry. Investors are familiar with the premium credit cards that offer valuable benefits and rewards. This makes the company a lender, taking on credit risk while being an issuer.

Moreover, the company also operates a closed payment platform, which connects its cardholders with merchants to facilitate transactions. This means that Amex can collect fees from merchants for providing this essential service

This unique business model is valuable because it supports the company’s competitive advantages. The credit cards resonate strongly with consumers, creating a powerful brand at the more expensive end of the market.

And the payment platform benefits from this network effects. As more cardholders and merchants join, it will immediately become more valuable to all stakeholders. That’s because there are more places to shop (for cardholders) and more customers from which to generate revenue (for merchants).

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American Express generated $16.6 billion in revenue in the third quarter of 2024 (ended September 30). That figure was 51% higher than the same period five years earlier, translating into an annualized gain of 8.6%. The growth formula is quite simple.

The main goals for the company are to add more existing cards, of which it had 145.5 million as of September 30. This was a 5% increase year over year, driven by growth among Gen-Z and millennial customers. Another lever is pricing power, with Amex increasing annual fees for its credit cards.

Add this to a backdrop of higher economic growth over time, and the company’s network is seeing greater spending volumes. Adding more partnerships with specific airlines, hotels or retailers also drives spending.

If history is any indication, Amex will have no trouble successfully executing its growth plans. The company has grown steadily over the years and is in a great position to continue this.

Investors should of course not ignore matters that could hinder this positive trajectory. An obvious speed bump would be an economic downturn. In such an adverse scenario, Amex’s expenses are likely to take a hit, leading to weaker earnings. In addition, cardholders could experience late payments, which could hurt profits.

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