Is American Express Stock A Good Value Buy?

  • American Express has dropped significantly due to negative growth and a poorer than usual short-term outlook.
  • The company still produces solid FCF with a stronger dividend yield than most in the industry.
  • With valuation multiples below the industry and S&P averages, American Express can be a good value play.

At a time when the payments industry is going through serious changes, some of the big players involved are being re-evaluated. 2015 ended up being a year of negative topline and bottom-line growth for American Express (NYSE:AXP), and 2016 has punished the stock for it so far which is down 20% year-to-date. While the company still faces global economic issues, competition in an evolving industry, and the loss of its powerhouse partner Costco (NASDAQ:COST), there is still plenty of strength and opportunity to motivate investors. Here are 3 reasons why American Express is worth your attention.

AXP stock chart

Source: American Express Stock Price Data by


With a 2.07% yield, American Express offers a nice little kicker to their painfully beaten down stock. The company has consistently increased their dividends over the last six years and produces strong free cash flow to do so. Although investors might be worried about their 4.3% decline in sales from 2014 to 2015, free cash flow only fell by 1.7% to $9.6 billion. FCF is strong enough to give confidence to dividend investors.

However, I’d be looking for their FCF to revenue ratio to increase from its current 29% as the company tries to cut costs by $1 billion over the next 2 years. There is room for American Express to increase their free cash flow levels from their current revenue which would substantially increase shareholder value. Nevertheless, at the current stage, American Express stock offers a dividend yield nearly 3 times higher than competitors Visa (NYSE:V) and Mastercard (NYSE:MA) with a potential to grow FCF in the upcoming years.

Cheap Valuation

American Express is trading at a PE of 9.7, which is less than half the credit services industry average of 19.7. Their balance sheet has remained consistent throughout the years and has been unaffected from 2014 to 2015 with a book value that represents about 38% of their current market capitalization. By virtually all valuation metrics – P/E, P/S, P/B, P/CF, American Express is trading below both the industry averages and the S&P 500 averages. With the sharp drop in American Express’ stock price, I believe there is a value play here.

Industry Opportunities

The payments industry is changing and we are continually moving further away from paying via cash. That makes this a 2-sided coin though. On the one hand, American Express is one of the premier established credit services companies who can lose market share to competition that is staying ahead of the curve in newer opportunities, such as mobile.

Increased competition can also hurt American Express’ fee structure and/or possibly force new efforts to re-brand their image, which wouldn’t be new to the 166 year old company. On the other hand, mobile payments is growing incredibly fast and projected to reach $717 billion in volume by 2017. If growth in mobile payments contributes to people moving even further away from cash payments, then it presents more revenue opportunities. Moving into the newer payments industry requires partnerships from all levels; merchants, payment processors, banks, credit service companies, etc. but can present big opportunities on the horizon.


American Express will still face some short-term obstacles – management knows it and so do investors. But over the long haul, American Express is a big player in an industry on the brink of a new evolution which can provide significant opportunity. With a solid dividend, strong free cash flow, and a cheap valuation, now is not such a bad time to pick up American Express stock for a long-term investment.

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