American Express (AXP +0.71%) stock fell 11% in March according to data provided by S&P Global Market Intelligence. Investors are worried about the impact of President Donald Trump's new tariff campaign on spending, which could negatively impact the credit card network's business.
What's happening at American Express
American Express has reinvented itself as a card of choice for the young and affluent. It's managed to capture this market without alienating its traditional business-minded cardmember, and it's making strides in its banking and small business categories as well. That's leading to momentum throughout the business, and although the company is celebrating its 175th anniversary this year, it's as potent as ever.
Revenue increased 7% last year, and earnings per share (EPS) were up 25%. Millennial and Gen Z customers are driving growth, accounting for the largest increases in spending by age group. It ended the year with record card spending, record card fees, and record card acquisitions of 13 million. Management said that fee-based consumer premium cards are the fastest-growing part of the industry in the U.S., and Amex has 25% of the category. Millennial and Gen Z adoption is growing faster than industry rates, and American Express is adding these members at a higher rate than industry levels.
NYSE: AXP
Key Data Points
The annual fees are an important feature of the company's model. They generate loyalty and provide a recurring revenue stream, and cardmembers are willing to pay them for American Express' formidable rewards program. Card fees increased 18% year over year in the fourth quarter and accounted for almost 13% of revenue.
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Tariffs might become a thorn in American Express' side in the short term. On the one hand, its core clientele is affluent and more resilient than the average consumer. On the other hand, these customers might cut down on luxury and discretionary items in the near term if tariffs add substantially to prices.
However, whatever happens right now, American Express is well positioned to manage through the volatility and come out on top. It's been there before, and it has stringent risk management models in place to deal with these kinds of situations.
At the current price, American Express stock trades at a P/E ratio of just under 20, which is just above its five-year average. Last year was a banner year for the company, and its stock was soaring. While not cheap today, the price is now reset to a more attractive entry point. The same reasons the stock looked so compelling last year still exist now, and investors can feel comfortable buying at this price and holding for the long term.
Correction: The original version of this report had an error about American Express' age. It's celebrating its 175th anniversary this year.
