American Express (AXP) stock has attracted fresh attention after recent share price moves over the past month and past 3 months. This has prompted investors to reassess its valuation and business performance drivers.

At a share price of $338.0, American Express has seen short term momentum pick up, with a 7 day share price return of 6.13% and 90 day share price return of 14.38%. Longer term total shareholder returns over 3 and 5 years of 108.14% and 113.50% show how the stock has rewarded patient holders despite a year to date share price decline of 9.32%.

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With American Express now trading at $338.0 and showing solid multi year total returns alongside recent share price weakness year to date, the key question is whether the current valuation leaves upside on the table or if the market is already pricing in future growth.

Most Popular Narrative: 12.8% Overvalued

According to a widely followed narrative from user andre_santos, American Express is trading above an estimated fair value of $299.60, compared with the recent $338.00 share price. This puts the focus squarely on the assumptions behind that gap.

American Express is a company with a wide moat and its competitive advantages are reflected in its high operating margin. Its solid EPS growth along with the massive reduction of shares makes it a good investment, however the fact that the cost of capital is greater or at least in line with its average last 5 Years ROIC can be something to watch out for.

Want to see how that wide moat, projected margins and earnings growth are combined into a single fair value number? The narrative leans heavily on long term profit expansion, disciplined capital allocation and specific assumptions about how those translate into future cash flows and valuation multiples.

Result: Fair Value of $299.60 (OVERVALUED)

However, this narrative could be challenged if American Express struggles to sustain revenue and net income growth, or if capital returns no longer compensate for valuation risk.

Another View: Our DCF Model Sees American Express Differently

While the user narrative lands on American Express being about 12.8% overvalued at $338, our DCF model tells a different story. On these cash flow assumptions, AXP trades at roughly a 16.1% discount to an estimated fair value of $403.03, which frames the current price as cheaper than that narrative suggests. Which set of assumptions do you find more convincing?

For readers who want to see how this cash flow based view is built step by step, Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out American Express for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 45 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If the split between fair value views on American Express has you thinking, consider taking action while the data is fresh. You can shape your own conclusion by reviewing the 3 key rewards.

Looking for more investment ideas beyond American Express?

If American Express has sharpened your focus, do not stop here, use the Simply Wall St screener to line up your next set of investment candidates with intention.

• Target potential mispricings by scanning for quality companies trading below estimated value through the 45 high quality undervalued stocks.
• Strengthen your income stream by hunting for companies that pair higher yields with staying power using the 8 dividend fortresses.
• Sleep easier at night by filtering for companies with lower risk profiles via the 66 resilient stocks with low risk scores.

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.