Earlier this year, American Express (AXP +4.14%) shares soared, building on a big 2024, when shares rose 58%. At their highest point so far in 2025, shares traded at $326.27. However, the stock has since retreated, falling well below $300 as of this writing. This pullback comes even as the credit card giant posts impressive fourth-quarter results and provides optimistic guidance for 2025.
So should investors view this dip as a buying opportunity or stay on the sidelines?
NYSE: AXP
Key Data Points
Business momentum remains strong
American Express wrapped up 2024 with record financial performance. The company's net income reached $10.1 billion, up 21% year over year, while earnings per share jumped an even more impressive 25% to $14.01. Revenue climbed 9% for the year to $65.9 billion. This growth was driven by a 6% increase in cardholder spending, totaling $1.55 trillion for the year. Notably, net card fee revenue grew by 16% to $8.4 billion, reflecting the company's successful acquisition of 13 million new cards in 2024.
The company's most recent quarter showed continued strength. Earnings per share reached $3.04 in the fourth quarter of 2024, up 16% year over year. Cardmember spending increased 8% for the quarter, with travel categories showing particularly robust growth. Airline bookings surged 13%, and first- and business-class travel jumped 19%. Total net card fee revenue rose 18% year over year, or 19% when adjusted for foreign exchange changes.
Notably, American Express continues to make significant inroads with younger consumers. Millennial and Gen Z cardholders increased their spending by 16% over the previous year. Management is upbeat about this trend, believing these younger customers' spending with AmEx will grow as their income and expenditures grow over a lifetime
Looking ahead, management expects 8% to 10% revenue growth in 2025, with earnings per share projected between $15 and $15.50. The company also boosted its quarterly dividend by 17% to $0.82 per share, giving the stock a dividend yield of 1.2% at the time of this writing.
Valuation remains relatively high
Despite the recent pullback, American Express shares aren't exactly cheap. At around $278 as of this writing, the stock trades at about 20 times trailing earnings. That's a premium valuation for a company that is forecasting high-single-digit earnings growth this year. In addition, American Express is an integrated payments company. That means that in addition to being a credit card company, AmEx also lends money, and that makes its balance sheet is somewhat liability-sensitive. For this reason, earnings could take a hit in a recession if the company needs to increase its reserves for accounts that could become delinquent. In short, a price-to-earnings multiple of 20 is quite high for a business with a liability-sensitive business -- even if AmEx isn't as liability-sensitive as a traditional bank.
To justify this multiple, American Express will need to continue delivering strong results consistently. This could prove challenging if interest rates decline, potentially pressuring the company's net interest income, which rose 18% year over year in 2024 and 12% in Q4. Economic headwinds or changing consumer spending patterns could also introduce uncertainty.
That said, American Express has demonstrated its ability to adapt and thrive. Management has successfully expanded into younger demographics, strengthened customer loyalty, and maintained expense discipline. The company also has an impressive track record of returning capital to shareholders, having returned $7.9 billion in 2024 through share repurchases and dividends.
While American Express stock has retreated from its peak, its valuation still reflects significant optimism. The business fundamentals remain robust, with impressive financial results and positive forward guidance. However, with shares still commanding a premium multiple, investors should moderate their return expectations.
For existing shareholders, holding through this minor pullback makes sense. For those considering a new position, patience is probably a good idea. A more substantial haircut to the stock price might provide a more attractive entry point. But there's no guarantee this pullback will ever happen.
