The stock underperforms despite strong Q2 results
American Express posted $19.6 billion in revenue for the second quarter. This reflects a 10% increase compared with the same period last year. Despite this positive result, the stock has declined by 6% year to date in 2025. This decline raises questions among investors about its direction. The company faces stiff competition. Mastercard has held steady. Visa has seen a 6% gain. The broader market indices, the S&P 500 and the Dow, have climbed by 13% this year. These benchmarks include American Express. The stock has not kept up with them.
Earnings per share jumped to $4.53, up 11% from the prior year, but the share price still fell. Analysts have mixed opinions, with only 48% recommending the stock as a buy. This is far behind the nearly unanimous support for Visa and Mastercard, each of which is recommended as a buy by 93% of analysts. The disparity has sparked debate about whether the financial giant is being unfairly ignored or whether the market has valid concerns about its future performance.
Credit quality, higher costs, and a CEO’s pitch
Amid these challenges, American Express showed strength in credit quality, with a decline in credit losses and 30-day delinquency rates compared to the previous year. This gives investors some confidence in the company's risk management. However, expenses rose by 12% to $14.5 billion, outpacing revenue growth. These costs are linked to investments in customer acquisition and engagement, which the company believes are essential for long-term success. Investors are now watching closely to see if these expenses will pay off in the future.
CEO Stephen Squeri addressed concerns during the earnings call. He stated that the increased spending on marketing, technology, and customer engagement is necessary. This spending aims to sustain high retention rates and fuel global growth. He emphasized that the company is 'winning with the next generation of premium customers.' He also stressed the strong foundation for expansion across all business segments. While the company did not raise its earnings guidance, Squeri expressed confidence in American Express's long-term potential. He believes it can deliver strong returns for shareholders.
Undervalued or unready for the next phase?
American Express is trading at a relatively low valuation of 20 times earnings. This is significantly lower than the average for its financial sector peers. Analysts are forecasting earnings growth of 14% by 2027. They potentially see earnings reaching $20.12 per share. This underscores belief in the company's future. However, some investors are worried. They fear the recent increase in investment costs could slow revenue gains. This could happen in the coming months, especially if the company continues to allocate more resources. These resources go toward marketing and customer acquisition.
As the market becomes increasingly competitive, the focus is on attracting younger, digitally engaged consumers. The question remains whether American Express is still leading the way. It is also whether the company is simply holding its ground. For now, the company's attractive valuation and strong projected earnings growth position it as a potential hidden gem. Still, the stock has not gained widespread support. It has not gained it from analysts or the broader investment community. This suggests it remains a somewhat overlooked option for investors.