Is American Express Stock a Bargain?

American Express (AXP +0.54%) has stumbled out of the gate and is down by roughly 10% halfway through the year. However, that can soon change when the global payments company reports earnings on July 24. First-quarter earnings had some good signs, and the valuation has become more enticing thanks to the sell-off.

Image source: Getty Images.

American Express is still growing steadily

Fundamentally, American Express is still performing well. An 11% year-over-year increase in revenue came with a 15% year-over-year boost in net income. Amex has held on to double-digit growth rates for a while, as reflected in its 13.1% compound annual growth rate (CAGR) for revenue over the past three years.

CEO Stephen J. Squeri cited "continued momentum across our premium customer base" as a primary catalyst. In an economy where high-income households do most of the spending, Amex is positioned to thrive. Its cards cater to wealthy consumers who are more resilient amid economic uncertainty.

The company is also implementing a growth strategy that has worked well. Part of that playbook has included an extended long-term partnership with the National Basketball Association (NBA) and recently becoming the official payments partner of the National Football League.

Getting in front of sports fans more often can help American Express win over new customers and retain existing ones. The fact that the company extended its NBA partnership is a testament that its current efforts are working.

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NYSE: AXP

American Express

Today's Change

(0.54%) $1.87

Current Price

$348.59

Key Data Points

Market Cap

$237BMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.Market cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.

Day's Range

$345.84 - $352.40

52wk Range

$288.34 - $387.49

Volume

38.5K

Avg Vol

3.2M

Gross Margin

60.19%

Dividend Yield

1.02%

The valuation is pretty cheap

Continued revenue and net income growth also comes with a cheap valuation, especially if you compare it to other companies that are known for credit cards. American Express trades at a 22 price-to-earnings ratio (P/E), which is considerably lower than Mastercard's and Visa's valuations, which each sit at 31 times earnings.

The businesses are slightly different. American Express issues cards, has a bank, and acts as a merchant acquirer. While Visa and Mastercard have their branding on many credit cards, they don't actually issue credit cards. Banks issue the cards and earn money on any interest or late fees, while Visa or Mastercard act as the payment network. This setup results in Visa and Mastercard having higher profit margins than American Express.

Although these differences exist, the gap should be a little narrower. Visa and Mastercard have three-year revenue CAGRs of 10.9% and 13.9%, respectively. American Express' 13.1% CAGR over that stretch sits firmly in the middle.

Although American Express may not wind up with a 31 P/E, it can experience expansion of its multiple and see marginal gains due to a rising P/E. Second-quarter earnings may serve as a catalyst to reignite the financial stock and help it out of its slump.