• Wondering if American Express is fairly priced or if there is still room for value at the current US$359.15 share price? This article walks through that question step by step so you can judge the valuation for yourself.
• The stock has been relatively mixed in the short term, with a 2.0% return over the last 7 days, a 4.4% decline over 30 days, and a 3.6% decline year to date. The 1 year return sits at 14.6%, and the 3 year and 5 year returns are very large at around 2x and 3x respectively.
• Recent attention around American Express has focused on its role as a major global card issuer and payments brand, with investors watching how it competes across premium consumer and business spending. Broader conversations about payment volumes, customer loyalty, and competition in cards and digital payments are all feeding into how the market is currently pricing the stock.
• On our checks, American Express scores just 1 out of 6 for being undervalued. Next we will look at what different valuation approaches say about the current price, then finish by considering a fuller way to assess value beyond the headline numbers.

American Express scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: American Express Excess Returns Analysis

The Excess Returns model looks at how much profit a company is expected to earn above the return required by shareholders, then adds the value of those extra profits to the underlying book value of the business.

For American Express, the model starts with a Book Value of $48.80 per share and a Stable Book Value estimate of $56.56 per share, based on future book value estimates from 8 analysts. On the earnings side, it uses a Stable EPS of $20.93 per share, sourced from weighted future Return on Equity estimates from 13 analysts, and an Average Return on Equity of 37.01%.

The Cost of Equity is set at $4.68 per share. This implies an Excess Return of $16.25 per share, or the amount the model suggests American Express could earn above shareholders’ required return. When these excess returns are capitalized, the Excess Returns valuation points to an intrinsic value of about $390.90 per share.

Compared with the current share price of US$359.15, this model indicates the stock is roughly 8.1% undervalued, which sits within a reasonable margin of error.

Result: ABOUT RIGHT

American Express is fairly valued according to our Excess Returns, but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Approach 2: American Express Price vs Earnings

For a profitable company like American Express, the P/E ratio is a useful way to think about what you are paying for each dollar of current earnings. Investors usually accept a higher P/E if they expect stronger earnings growth or see the business as lower risk, and look for a lower P/E if growth is more modest or risks are higher.

American Express currently trades on a P/E of 23.02x. That is much higher than the Consumer Finance industry average P/E of 8.35x, and very similar to the peer group average of 22.94x. Simply comparing to the industry could be misleading because business models, growth profiles and balance sheets can be quite different even within the same sector.

This is where Simply Wall St’s Fair Ratio comes in. The Fair Ratio of 20.55x is a proprietary estimate of what a reasonable P/E could be for American Express, given factors like its earnings growth profile, profit margins, risk characteristics, industry and market cap. Because it is tailored to the company, it aims to be more informative than a broad industry or peer comparison. Against this Fair Ratio, the current P/E of 23.02x is higher, which suggests the shares are trading above that reference point.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your American Express Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply your own story about American Express, backed by your view of its future revenue, earnings, margins and fair value. On Simply Wall St’s Community page, you can create or follow Narratives that tie together what the business does, how you expect its finances to develop, and what you see as a reasonable fair value, then compare that to today’s share price to decide whether the gap is attractive or not. Because Narratives sit on live forecasts, they update automatically when new information such as earnings releases or major news is added, so your view does not stay frozen. For American Express, one investor might build a Narrative with a relatively high fair value based on strong premium card demand, while another might set a lower fair value if they are more cautious about competition and spending trends.

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

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.