Key Points
American Express stock would need to register an unbelievable 38% annualized gain throughout the rest of the decade.
Management believes the business can put up mid-teens earnings-per-share growth over the long term.
The stock is currently expensive, but this is a high-quality company.
10 stocks we like better than American Express ›
American Express (NYSE: AXP) is a dominant force in the credit card industry, with premium offerings that support its brand recognition. It also runs a closed-loop payments platform, allowing it to benefit from a network effect. Warren Buffett certainly likes the business, as Berkshire Hathaway owns 21.8% of the outstanding shares.
But can this financial stock turn a $10,000 investment into $50,000 by 2030? Here’s what investors need to know.
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Soaring throughout the rest of the decade
If American Express shares soared fivefold over the next five years, investors would register a fantastic 38% annualized return. That gain would certainly outperform the broader market.
However, it’s best to temper expectations. With the utmost confidence, I can say that American Express stock won’t turn a $10,000 investment into $50,000 by 2030. In the past five years, shares have generated a total return of 237%, which is still great, but well short of 400%.
This is an established business that won’t put up monster growth anymore. Management expects earnings per share to increase at a mid-teens percentage pace over the long term.
Extend the time horizon for American Express
While betting on American Express shares to rise fivefold in five years is a losing proposition, all hope isn’t lost. Investors who can lengthen their time horizon might see that kind of gain from this stock. I wouldn’t be surprised to see a 400% return over a 15- or 20-year period, for instance.
The stock isn’t cheap, though. Prospective buyers must be OK with paying a historically expensive price-to-earnings ratio of 21.6 to add American Express to their portfolios. This introduces a headwind to achieving even better returns.
This is an outstanding company. It’s a strong brand, benefits from a network effect, and has the Oracle of Omaha’s endorsement. It at least deserves a spot on the watch list for now.
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American Express is an advertising partner of Motley Fool Money. Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
