Valuation Over Business: When a Great Stock Becomes a Bad Investment
When evaluating stocks, investors often focus on whether a company has favorable characteristics that point to durable success. However, even if a financial stock is a great business, it can still be a bad investment if shares are overvalued.
American Express (AXP) is a prime example of this phenomenon. The premium credit card enterprise boasts a track record of consistent revenue and profit growth, strong pricing power due to its annual fees, and an impressive brand strength.
However, when the valuation gets too high, even a great business like American Express can become a poor investment. At the start of this year, the company traded at a price-to-earnings (P/E) ratio of around 24. As of September 25th, its share price had fallen by 17% in 2026.
Despite this downturn, American Express' fundamentals haven't changed. With the S&P 500 index climbing 13% this year, the current valuation offers a better entry point for prospective investors. The company's stock now trades at a P/E multiple of under 19, making it an attractive opportunity.