American Express: Buy This One When Things Get Ugly (AXP)
Diving into Q1 results
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American Express stock remains on my watchlist. It still remains a high-quality business, but I want to buy the stock when everyone hates it again.
That did not happen in Q1. The results were rock solid yet again:
Shares outstanding down 3% year-over-year
Raised dividend by 17% in March
Billed business (payment volume) up 7% year-over-year excluding Leap Day
14% growth from Gen Z and Millennials, 13% growth from international
Stable write-off rates
3.4 million net card acquisitions in the quarter
Not a single thing to nitpick. As more cards join the network, the more valuable it is to offer American Express as a payment option as a merchant. Importantly, younger and international customers are becoming a larger piece of the pie.
The journey to fully international acceptance (in markets that matter) will be long, but this is how you do it. Younger and global.
American Express can press its advantage in the travel/entertainment credit card space as it keeps scaling. Last quarter, it spent $4.4 billion on card member rewards. Earnings still grew.
This is where the vertical integration with the card network comes into play. As American Express regains its scale, it will have a growing competitive advantage vs. any credit card on the Visa and Mastercard network.
Low end of earnings per share (EPS) guidance in 2025 is $15. That is a forward P/E of 17.7. Not bad, but not dirt cheap imo. EPS can grow at 10%+ in perpetuity with GDP+ growth, inflation, and share buybacks.
Each quarter, 3 million in new cards get added to the network. These are 3 million cards that have large lifetime values. As long as net write-off rates remain stable, new card additions are what I care about above all else at American Express, and they are doing a wonderful job acquiring new customers.
2025 is a big test for American Express. This year, it will likely be updating its $695 fee Platinum Card that caters to the travel market. I wouldn’t be surprised if the annual fee rises to $1,000. I will be tracking the Platinum Card update closely. Nailing this upgrade could help card fee revenue segment maintain its 20% growth rate.
American Express stock should do fine over the long haul.
But, as I said above, I am greedy. I have high confidence that American Express stock will slide in a broad market panic, especially if the panic is related to the health of the consumer balance sheet (cough, cough, tariffs).
If we see a flush in American Express stock, I will be scooping up shares and making it a large position in my portfolio. The current numbers may not look perfect at the time, but it is likely you will be able to buy shares at ~10x normalized earnings for a company that can perpetually grow EPS at 10% a year.
That is a never sell candidate and why Buffett’s purchase of the stock briefly became a 100 bagger earlier in 2025. Stay patient and get ready to do the same if calamity hits.
-Brett
Amazing business!