American Express (AXP -0.62%) reported its 2023 fourth quarter financials not too long ago, and based on the market's positive reaction, the numbers were well-received. Investors were probably excited about the guidance that was given.

This momentum is part of the reason why shares are up 71% in the last three years (as of Feb. 2). This gain far outpaces the 30% rise of the S&P 500.

Can the good times keep rolling for this top financial stock? Find out what the bulls and bears say about AmEx before figuring out if it's a smart buying opportunity today.

AmEx is a quality enterprise

Going back to American Express's latest results, the business reported revenue (net of interest expense) and diluted earnings per share (EPS) growth of 11% and 27%, respectively, in Q4 on a year-over-year basis. This is a company that continues to post solid gains regardless of the macroeconomic environment.

In 2023, AmEx added 12.2 million net new card members, just slightly fewer than it did last year. During the last quarter, 32% of the company's U.S. payment volume was from the millennial and Gen Z demographics, showcasing how the business is successful at attracting younger customers who could be lifelong members. This group is also registering the fastest growth in spending.

Management provided an upbeat outlook. They expect revenue to rise between 9% and 11% this year, with diluted EPS slated to jump 13% to 17%.

The sign of a marvelous business is the presence of an economic moat. Thanks to its powerful network effects, AmEx's competitive position faces minimal threats of disruption. The company operates a closed-loop system, which means it not only issues cards to customers, it also operates the communications channel that merchants use to accept payments. As more card holders come on, the network becomes increasingly valuable to merchants, and vice versa. This positive feedback loop is what makes the business special.

American Express also stands out from the crowd because of its ability to target higher-income customers who are generally a lower credit risk for the company. Instead of trying to mainly earn interest income on card balances, AmEx focuses on a spend-centric model. This means most of its revenue comes from people using their cards, and from annual fees.

Having more affluent card members has resulted in much lower default rates for AmEx. In Q4, it reported a net charge-off rate of 2%. To be fair, this has ticked higher in the last few quarters, but it's still below pre-pandemic levels -- and it's much lower than other major credit card issuers'.

Industry and macro factors

To gain a more holistic view, investors also need to understand some reasons why AmEx might not be a good business. It's always smart to know both sides of the story.

For starters, we can't ignore the competitive landscape. I discussed above how AmEx's network effects protect it in a cutthroat industry. But this is still something that should be on your radar.

When it comes to attracting new card members, American Express faces intense competition from the likes of JPMorgan Chase, Bank of America, and Capital One, to name just three companies. All offer card products with top-notch rewards and perks, which can diminish the high-end status that AmEx tries to exude.

American Express might target wealthier clients, but it's still fully exposed to the macroeconomic environment. Changes in interest rates and inflationary pressures have a profound effect on consumer behavior and spending patterns. If a severe recession happens, the business could see its charge-offs shoot up. Consequently, there is some cyclicality here.

Taking all the above factors into account, I think the bullish arguments are far more compelling than the bearish. This makes AmEx a fantastic stock to buy right now.