Amid the ongoing bull market, American Express (AXP +1.46%) continues to benefit. Its shares have soared 46% in just the last six months. That's thanks to strong financial results.
Zooming out to the past five years, this top Warren Buffett stock has more than doubled in price. But at a compelling forward P/E multiple of 18.1, investors might still be interested in scooping up shares to hold for the long term.
If this sounds like you, it's worth taking the time to figure out where American Express will be in five years.
Posting strong results
Inflationary pressures, higher interest rates, and recessionary fears are worrying investors these days. But this business continues to put up solid numbers.
Just in the last quarter, revenue (net of interest expense) and diluted earnings per share increased 11% and 27%, respectively, year over year. During the three-month period, Amex added 2.9 million net new card accounts.
Executives believe the momentum will continue throughout 2024, as they expect double-digit revenue and earnings gains this year. If a recession did happen, it could certainly have a negative impact on the business. But American Express has successfully navigated economic downturns before. And this should give investors confidence.
NYSE: AXP
Key Data Points
In replication mode
Trying to accurately predict the future is a virtually impossible task. No one knows what the world will look like five years from now. This reality can make investing difficult for those who allocate capital behind constantly changing technology-focused industries. It's hard to know how things will play out.
Luckily, this isn't an issue with American Express. It operates in the boring and slow-moving card payment arena. In fact, the business has been around for over 170 years, showcasing its longevity and ability to navigate the changing times successfully.
If we set our sights on 2029, I believe there's a very high likelihood that American Express will be doing the exact same things it does now. That primarily includes bringing on new card members and signing up new merchants. In other words, the company is simply in replication mode, continuing to do what it knows best and what has worked in the past.
But of course, there are some trends that investors should be mindful of. American Express is attracting younger customers at a rapid pace. In 2023, 60% of new consumer card members were millennials or Gen-Z consumers.
Management is also focused on better serving its customer base. This includes inking new deals. "We have a large and growing partnership ecosystem that expands our brand value to card members and merchant partners around the world," said CEO Steve Squeri on the Q4 2023 earnings call.
Can the stock double in five years?
Shares of Amex climbed 108% in the past five years. And I'm sure some bullish investors are hoping for a repeat performance over the next five years. That gain might just outperform the S&P 500.
One of the most important factors that drives a stock's performance is the bottom line. With this in mind, it's easy to be optimistic. According to Wall Street consensus analyst estimates, Amex's EPS is set to rise at an annualized pace of nearly 15% between 2023 and 2026. Should it keep that rate up even further out, while the valuation multiple stays the same, doubling the stock price is the likely outcome.
I like to keep expectations a bit more tempered, though. Given how much the stock has rallied recently, as well as the fact that its valuation isn't exactly a screaming bargain right now, I have less confidence that it can double again over the next five years. This is a mature and stable enterprise that might not be able to register that kind of gain.
However, don't let that outlook discourage you. American Express is still set to perform very well for investors over the long haul.
