American Express continued its strong rally in 2024, becoming one of the best-performing companies in the S&P 500 index. AXP stock soared to a record high of $307, up by over 57%. Since its lowest level in 2020, it has surged more than 370%, bringing its market cap to over $209 billion.
American Express stock jumped as growth continued
American Express, one of the top investments by Warren Buffett, had a strong performance in 2024.
It has mostly benefited from the relatively high interest rates and the rising demand for its credit cards, especially among young people.
AXP’s net interest income rose from over $8.6 billion in 2019 to over $15 billion in the trailing twelve months. This growth has helped to push its annual revenue from $39 billion to $59 billion in the same period.
The most recent results showed that American Express’s business continued well in the third quarter.
Its total billed business rose by 6% to $387 billion, bringing the nine-month billings to over $1.14 trillion.
This growth translated to a 8% revenue growth of $16.6 billion and its net income to $2.5 billion. As a result, the management boosted its conservative forward guidance, as the number of cardholders rose. It expects its earnings per share to be between $13.75 and $14.05.
American Express business will likely continue to do well in the next few years, as it will take advantage of higher interest rates. Its annual revenue is expected to be about $66 billion, representing a near 10% increase from a year earlier.
The company’s revenue is expected to grow to $71 billion this year. If this trend continues, it will likely have over $100 billion in annual revenue by 2030. The management believes that the company will deliver double-digit returns in the next few years.
Read more: American Express stock has upside, but a pullback can’t be ruled out
Its most important catalyst is that the younger generation is joining its business. Data shows that about three-quarters of its accounts opened in 2023 came from millennials and Gen Z.
Most importantly, many of these customers are going straight to its $695 annual fee consumer platinum card. In the past, many consumers used to start with the zero-fee card and worked their way up.
Another important factor is that American Express is fairly immune to the ongoing credit card default rates in the US. That’s because Amex mostly focuses on affluent clients unlike other credit card companies.
The most recent results showed that credit cards with 30+ days due stood at just 1.3%, lower than the pre-pandemic level of 1.5%. Also, the net write-off rates has dropped from the pre-pandemic level of 2.2% to 1.9%.
Still, a key concern for American Express is that it is a fairly overvalued company. One way to assess this is to compare its valuation with its annual profits. With a market cap of over $202 billion and annual profits of almost $10 billion, American Express has a PE of about 20.
AXP stock price analysis
AXP stock chart | Source: TradingView
The weekly chart shows that the American Express stock price has been in a strong uptrend in the past few years. It has found some substantial resistance at the $300 level. The stock has remained above the 50-week and 100-week moving averages, pointing to a potential mean reversion.
There are signs that the Relative Strength Index (RSI) and the MACD indicators have formed a bearish divergence pattern. Therefore, the stock will likely pull back some more this year and then resume its uptrend. As we wrote in this Dow Jones report, there is a likelihood that some of the top gainers in 2024 will reverse this year. That would see it drop to $250 and then rebound.
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