American Express Stock May Be 27% Undervalued Amid Expanded Card Acceptance

American Express (AXP) stock has seen significant growth over the past few years, but its current valuation is under scrutiny. The company's total return of 112.2% over three years raises questions about whether its capital returns can justify this price movement. Recent efforts to expand card acceptance and deepen business banking offerings could influence American Express' efficiency in reinvesting capital.

Looking at the company through earnings instead, American Express' Price-to-Earnings (P/E) ratio of 18.3x tells a different valuation story. The Excess Returns model compares profit on equity to the cost of that equity and shows a wide gap between what American Express earns on shareholder capital and what investors require as a return.

The model indicates an excess return of $16.62 per share, built on an average return on equity of 36.37%. With shares trading at $306.33, the estimated intrinsic value is significantly higher than the current price. The expansion of card acceptance to over 190 million merchant locations worldwide supports this strong excess return stream.

Community views on American Express are split between those who see more upside in the premium model and those who think the current pricing already includes a lot of that story. Some investors believe American Express is undervalued, while others see it as roughly fairly valued or even overvalued.