American Express Co. (NYSE:AXP) is a payments, network and travel company, which offers credit payment card products and travel-related services to consumers and businesses. On July 22, 2015, the company reported second quarter earnings of $1.42 per share, which beat the consensus of analysts' estimates by $0.10. In the past year, the company's stock is down 15.55% and is losing to the S&P 500, which has gained 6.87% in the same time frame.
Today the company reported earnings which missed on the top line and it was this bit of news that made me want to evaluate the stock on a fundamental, financial and technical basis to see if it's worth creating a position in any portfolio.
The company currently trades at a trailing 12-month P/E ratio of 13.86, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 13.81 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $5.72 per share and I'd consider the stock inexpensive until about $86. The 1-year PEG ratio (3.15), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 4.4%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 1.47% with a payout ratio of 20% of trailing 12-month earnings while sporting return on assets, equity and investment values of 3.8%, 28.6%, and 4.6%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 1.47% yield of this company alone is good enough alone for me to take shelter in for the time being. The company has been increasing its dividends for the past four years.
Looking first at the relative strength index chart [RSI] at the top, I see the stock is in middle ground territory with a current value of 51.96. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars decreasing in height which tells me bullish momentum is getting tired in the name. As for the stock price itself ($78.99), I'm looking at $80.41 to act as resistance and the 20-day simple moving average (currently $78.38) to act as support for a risk/reward ratio which plays out to be -0.77% to 1.8%.
Fundamentally I believe the company to be inexpensively valued now on next year's earnings estimates and expensive on earnings growth potential with nearly no earnings growth expectations for the near-term. Financially the company pays a small dividend and has decent financial efficiency ratios. On a technical basis the risk/reward ratio shows me there is more reward than risk right now.
Though there appears to be a bit more upside on technical basis I wouldn't be initiating a position in the name at this time. If you're really itching for it, then maybe just a really small position. Personally I can't invest in something that doesn't have any earnings growth for next year ($5.72 compared to $5.70 on a trailing basis).
My Take: Don't Buy
Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.