American Express: The Growth Story Isn’t Over (NYSE: AXP)

The management team at American Express (AXP -0.38%) is optimistic about the future. Executives expect the company’s revenue to increase at 10% per year over the long term, with diluted earnings per share rising at a mid-teens rate. This is a meaningful tailwind that can help fuel investor returns.

This financial stock, which is a top holding for Warren Buffett’s Berkshire Hathaway, isn’t finished growing. Attracting a younger customer base, adding more value to members, and broader economic and industry trends should propel the top and bottom lines forward.

Image source: The Motley Fool.

Millennial and Gen Z consumers

During the second quarter, 65% of the company’s new consumer card signups globally came from millennials and Gen Zers. And these two demographic cohorts are growing their spending faster than older generations.

Millennials have an age range of 30 to 45, while Gen Zers are 14 to 29. These people still have a long runway ahead of them to grow their earnings power. Consequently, American Express benefits with higher lifetime value, as it can capture that spending on its own network.

Rewards, perks, and benefits

In Q2, American Express’s expenses outpaced its net revenue growth. This was intentional.

“We can either drop the overperformance to the bottom line and buy back more shares, or we can invest to grow the business further through the wide range of attractive growth opportunities we have across our business, both in the U.S. and international,” CEO Steve Squeri said on the earnings call before highlighting the Platinum card refresh as a clear example.

When it comes to rewards, perks, and benefits, industry observers would agree that American Express is in a league of its own. This is what has allowed it to occasionally raise annual fees.

The leadership team’s unwavering focus on investing to provide more value to its card members can pressure profitability in the near term. However, it can certainly bolster the company’s competitive position in the long run. Such investing supports a growing customer base, higher spending, better retention, and ultimately greater revenue and earnings.

Today’s Change

(-0.38%) $-1.27

Current Price

$336.25

Key Data Points

Market Cap

$227BMarket 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

$336.00 – $340.30

52wk Range

$290.63 – $387.49

Volume

2.4M

Avg Vol

3.2M

Gross Margin

59.74%

Dividend Yield

1.05%

Industry and economic tailwinds

Because it’s a payments enterprise, it’s no shock that American Express directly gains from ongoing economic growth. Additionally, the business is positioned to benefit from the rise of the cashless economy. This has been a durable tailwind.

As a closed-loop payment network, American Express collects discount revenue from merchants that use its system. On the other side, it generates fees and interest from cardholders. As more spending activity shifts from cash and paper-based methods to cards and digital forms, the company wins.

Payment volume was up 9% year over year in the last quarter. That figure is set to continue marching higher over time.