|Type of paper:||Term paper|
|Categories:||Company Financial management|
Over the last few decades, public traded companies have developed to be an integral part of the economy. They play significant roles in commerce, saving, investment, and economic development of a country. In the United States, the number of public companies has been growing since the boom of the economy, which have renewed investors' interest in American stocks (Sornette, 2017). As a result, stock markets such as the New York Stock Exchange and NASDAQ have grown to be important financial institutions in America. They provide capital to entrepreneurs and businesses through selling and buying of shares and equities. Consequently, public limited companies have been trading their shares in the stock market to raise capital for expansion and new venture. However, due to competition between firms prospective investors have been having a hard time selecting the most suitable company for investment (Sornette, 2017). For instance, in the credit card industry, American Express has been facing stiff competition from Visa, Master Cards, Chase, and Discover. Therefore, this paper will analyze the American Express Company (Amex) as a potential stock investment.
The American Express Company and its associated affiliates are multinational finance, travel and network service providers. The company was founded in 1850 as a joint stock association to offer express mail services in New York State. After enjoying a period of virtual monopoly on express shipment within New York, Amex extended its operation to serve the American market through affiliating with other companies. By 1990, Amex had grown to an international corporation forming a reputable brand visibility and attracting huge volumes of customers worldwide (Volkman, 2018). Today, Amex is best known for its process payments, credit cards, and travel-related services in the global domain. The company has also emerged to be the most dominant acquiring bank in the credit card processing sphere. Therefore, I choose American Express Company for analysis due to their recent progress and the growing obsession for easy credit cards. Likewise, Amex has been one of the most promising corporations appealing to a considerable number of investors because of their promising market opportunities.
Opinions on Amex Stock as an Investment
After Amex lost Costco Corporation in 2016, it parted ways with a sizeable portion of its customer credit card portfolio. As a result, Amex's quarterly earnings and revenue started to decline as compared to the previous year (Cramer, 2017). However, a year later the company has returned to organic growth by doubling down their new customers and initiating programs to engage the existing shareholders. Mainly, the growth has resulted from their effort to review premium card membership with an aim of attracting more consumers in a market where credit appetite is high. Likewise, the company has introduced digital programs to reach to millennial generation and to make their service easily accessible. Therefore, with more clients coming on board Amex continues to retain its competitive advantage making it a key corporation to consider for investment. Nonetheless, their profit margins in the last few years have not met the expected targets making Amex susceptible to significant drawdowns.
Investment Risk for AMEX Stock
In the last few years, Amex has had a good reputation despite facing paradoxical conditions. According to financial analysts, the entire credit card industry is expected to have a double-digit growth of about 24.51 percent in the coming year. In fact, the prospected growth rate is higher than that of the United States stock market. As a result, investors are urged to consider the credit card sector as a prospective investment opportunity. Amex stands out over her competitors in the industry with the company enjoying a consistent price gain to its stocks in the year 2018 (Volkman, 2018). However, the credit card sector has widely been hit by tax charges imposed by the Trump administration making it a risky area for investment.
Comparison of Amex Stock to its Competitors
The credit card industry has been one of the most competitive sectors of the global economy due to the development of alternative payment mechanism and systems. Some of the primary competitors of Amex include Discover Financial Services, Master Card Worldwide, and Visa Inc. Visa remains the undisputed market leaders with a market share of about 53 percent as at first quarter of 2018 while Amex and Master Card have an identical market share of approximately 22 percent each (Armental, 2018). However, from the growth rate prospect and risk Amex is likely to dominant Master Card although Visa remains the main competitor to beat.
Growth Rate of AMEX
By focusing on the profitability of Amex, the company reported a 31 percent increase in the first quarter profits of 2018. As a result, the prices of shares rose by an average of $1.86, which was the biggest increase in billed business growth since the third quarter of 2014 (Armental, 2018). The profits are expected to project further by 2019 making Amex a great stock investment among investors. Likewise, the currently Amex is trading at a high price-to-earnings ratio of about 29.2x, which is higher than the industry's average of 14.5x. Consequently, investors anticipate higher growth from the company in the future.
For decades, Amex has been paying dividends to its shareholders after being in the stock market for several years. In fact, before the financial crisis of 2000, Amex aimed at maintaining stability with its dividends. They considered the yield on dividends as one of the significant contributors to total returns produced by equity securities (Heidhues & Koszegi, 2015). Today, Amex dividend yield is approximately 1.56 %, which accounts for $1.56 per share. Due to increased competition in the credit card market Amex have adopted a dividend hiking strategy to keep attracting investors. For instance, in the coming quarter of 2018, the company intend to increase its dividends by 11 percent, which will be an advantage to their loyal stakeholders (Volkman, 2018). Amex trade both in New York Stock Exchange market under the ticker symbol AXP. Amex continues to attract the public due to their growth and consistency in the stock market ensuring them better investment returns.
In conclusion, through the buying of stocks, the general public holds a substantial stake of Amex, which makes it part of the retail investors. Potential investors can, therefore, invest comfortably in the company and restrain themselves from getting trapped in sell-offs and acquisitions by actively taking part in the decision-making process. By involving the general public in decision-making, Amex promotes accountability and transparency in their operations. Likewise, despite the challenges Amex might have encountered in the past they have consistently performed well and retain their dividend stability. The future outlook of and performance of the AXP's stocks are also promising to make them a competitive company in the stock market. Therefore, I would recommend Amex Company's stocks for investment.
Armental, A. (2018). American Express Posts 31% Jump in First-Quarter Profit. Retrieved from https://www.wsj.com/articles/american-express-posts-31-jump-in-first-quarter-profit-1524083079
Cramer, C. (2017). How Far Could American Express Fall? Retrieved from https://seekingalpha.com/article/4168386-far-american-express-fall
Heidhues, P., & Koszegi, B. (2015). On the welfare costs of naivete in the US credit-card market. Review of Industrial Organization, 47(3), 341-354.
Sornette, D. (2017). Why stock markets crash: critical events in complex financial systems. Princeton University Press.
Volkman, E. (2018). Is American Express Company a Buy? -- The Motley Fool. Retrieved from https://www.fool.com/investing/2018/02/23/is-american-express-company-a-buy.aspx.
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