American Express (AXP) is back in focus after Piper Sandler initiated coverage of the payments and consumer finance sector, highlighting the company alongside other large card issuers as a key holding in the group.

Recent moves around American Express, including its planned acquisition of TheFork, new Membership Rewards redemptions through Apple Pay, and participation in the Open USD stablecoin initiative, have come alongside a 30 day share price return of 6.88% and a 90 day share price return of 12.21%. Total shareholder return sits at 5.97% over one year and more than doubles over three and five years.

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With American Express stock trading at $338.25, an intrinsic value estimate pointing to a 16.08% discount, and the average analyst target sitting higher at $366.58, you have to ask: Is there still upside here, or has the market already priced in future growth?

Most Popular Narrative: 12.9% Overvalued

According to the latest narrative on American Express, the estimated fair value of $299.60 sits below the last close at $338.25, which sets up a clear valuation gap for investors to examine.

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 can be attractive for some investors. 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 understand why this narrative still lands on a premium to fair value? The core assumptions hinge on profit margins, earnings compounding and how long those trends can hold.

Result: Fair Value of $299.60 (OVERVALUED)

However, American Express could see this overvaluation view challenged if earnings growth underperforms expectations or if funding costs rise and increase its cost of capital.

Another View on American Express Valuation

While the popular narrative pegs American Express at about 12.9% above a $299.60 fair value, the SWS DCF model points in the opposite direction, with a future cash flow value estimate of $403.04 versus the current $338.25 share price, which suggests the stock is undervalued on this method.

That gap between a premium on earnings based narratives and a discount on cash flow based math puts the spotlight on your assumptions around growth, margins and discount rates. Which framework do you feel more comfortable relying on when those inputs are uncertain: the earnings multiple story or the cash flow model?

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 43 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

With American Express drawing mixed views on value and risk, do you want to rely on others or test the story yourself while the data is fresh? Take a closer look at the trade offs and see both sides clearly with 3 key rewards and 1 important warning sign

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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.