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American Express (NYSE: AXP) is a top company within the financial services industry that has found lasting success. This has propelled its share price, which has risen 268% in the past decade. Including the dividend, the stock has produced a market-beating total return of 326%.
Should investors buy this leading credit card and payments business while its shares trade just below $300 (as of Feb. 24)? Investors should consider the bull and bear arguments before making a decision that could impact their portfolios.
American Express' wide moat
One of the top reasons investors should consider buying American Express is its wide economic moat. This means the company possesses sustainable competitive strengths that allow it to keep rivals at bay.
One area to pay attention to is Amex's powerful brand, which holds tremendous value in the financial services industry. It offers premium credit cards that often come with high annual fees and impressive perks and rewards, which attracts a more affluent customer base. These people generally have greater spending power, making Amex a partner of choice for various airlines and hotels, for example.
As of Dec. 31, there were 146 million American Express cards active across the globe. These are accepted by about 90 million merchants worldwide. At a high level, this two-sided platform creates a network effect in which more users on each side immediately increase the value Amex provides. This setup is virtually impossible for anyone else to replicate.
Besides the company's durable competitive advantages, investors will also appreciate American Express' growth trajectory. Payment volume and revenue continue to increase at healthy rates. It's worth pointing out that Gen-Z and Millennial consumers are registering faster spending growth than older generations. The business is doing a great job of bringing on these younger consumers, which bodes well for future success as their spending power increases over time.
Generating profits also isn't a problem. The business put up a net profit margin of 15% in 2024. Operating a scaled platform can be very lucrative. What's more, Amex has figured out how to approve customers and take on credit risk in a very profitable manner. This is demonstrated by its industry-leading charge-off rate.
Investors should be patient
As previously alluded to, American Express is a wonderful business. Even the great Warren Buffett thinks so, as Berkshire Hathaway remains a large shareholder. However, this doesn't mean investors should immediately rush to buy the stock.