American Express is a stock that Warren Buffett has in his Berkshire Hathaway portfolio, which often leads some investors to consider it a worthy buy.
However, it’s important to think about more than just Buffett’s endorsement, like the underlying business and its current valuation. So, let’s explore whether American Express is a smart investment right now.
American Express has a strong business
American Express is a major player in the financial sector, mainly functioning as a payment processor. Its logo is prominent on credit cards used both in stores and online, and each transaction earns the company fee revenue. Additionally, American Express issues its own cards, contributing directly to their income from customers.
A key aspect that sets American Express apart from its competitors is its focus on wealthier clients. These affluent consumers often maintain their spending even during economic downturns, meaning American Express generally performs better in challenging economic conditions.
The year 2025 has come with its share of uncertainties, from trade disputes to fluctuations in the stock market. American Express’s stock price experienced a dip at the start of the year alongside the S&P 500 but has now rebounded as confidence among investors returns.
Interestingly, American Express’s price movements tend to be more volatile than those of the market overall.
American Express is still below its previous high
This indicates there may still be room for recovery in its stock price. Given the robustness of its business model, that doesn’t seem far-fetched.
Yet, significant price fluctuations can also indicate other issues. Sometimes investors get overly optimistic, pushing prices to unsustainable heights early in the year. A return to earlier levels might simply show that investor expectations are readjusting.
Unfortunately, traditional metrics lean towards suggesting the latter. The price-to-sales ratio for American Express is currently around 3.1, compared to a five-year average of 2.6. The price-to-earnings (P/E) ratio stands at about 20.5, above the long-term average of under 19, while the price-to-book ratio is at 6.6 against an average of about 5 over the past five years.
All three indicators suggest that American Express is quite pricey at the moment. This observation is also supported by a non-traditional metric: its dividend yield, which decreases as stock prices climb. Currently, American Express’s dividend yield is roughly 1.1%, which is lower than the already modest 1.3% yield from the S&P 500 and close to its lowest point in a decade.
Overall, it seems clear: Amex might just be too expensive right now.
American Express is a sound business
There’s a reason why Warren Buffett holds American Express in his portfolio. It’s a high-quality business with distinct advantages relative to its competitors.
Buffett’s commitment to American Express isn’t new; he’s been an owner for years. His strategy often emphasizes sticking with strong companies. However, it’s worth noting a critical insight from Buffett’s mentor, Benjamin Graham: American Express may be a bit too pricey for investors to dive in at this moment.
