Amex Still Undervalued Despite Three-Year Rally

American Express (AXP) stock has been on a tear over the past three years, more than doubling in value. Despite this impressive performance, research using the Excess Returns model suggests that the shares still trade at a discount to their intrinsic value.

The Excess Returns model estimates that American Express's excess returns above its cost of equity are around $16.65 per share on average, with an average return on equity of 36.43%. This translates into an intrinsic value of about $417.79 per share, implying a discount of around 19.5% to the current market price.

However, broader valuation checks using the P/E ratio suggest that American Express is not as cheap as the Excess Returns model suggests. The company's P/E ratio of 20.1x is close to both the peer average and the modeled fair P/E ratio of 19.8x, which reflects its profitability profile and scale in payments.

The question for investors is whether American Express can sustain its high returns on equity over time, and whether the current share price already reflects most of the intrinsic value estimate.