1. Value
| American Express | Visa | MasterCard | Group Average | |
| Forward P/E ratio | 12.4 | 18.2 | 19.5 | 16.7 |
| Price to Sales (TTM) | 1.9 | 11.8 | 8.6 | 7.4 |
| Price to Book (MRQ) | 3.3 | 3.7 | 9 | 5.3 |
| Price to Free Cash Flow (TTM) | 5 | 30.6 | 24.5 | 20 |
American Express is obviously the slowest grower of the group with the lowest forward earnings multiple. This low multiple for AXP however, brings down the group average making the other two look expensive. On a price to sales basis American Express exhibits the same trend with the lowest ratio in the group and the group average significantly above the multiple placed on AXP. The price to book ratio is low again for American express whilst it is high for MasterCard. Free cash flow is a fundament that Buffett finds the most important, with AXP trading at the lowest multiple to its free cash flow I believe Buffett would still American Express as the most undervalued stock in the group.
2. Company Performance for Investors.
Return on Equity, is a measurement of how quickly a firm has improved shareholder funds over the period and is a decent measurement of how shareholders can expect the company to perform in the future increasing the shareholder capital base.
Over the past five years, the best and most consistent shareholder return has been from American Express. Both Visa and MasterCard have been able to increase shareholder return on average; however, there has been significantly more volatility in the ROE over time. This could be an indication that American Express will continue to sustain a constant level of just under 30% return on shareholder equity over the next few years. This presents a much better prospective investment than the erratic Visa and MasterCard.
3. Cash Flow and Profitability
| Operating Margin | Profit Margin | |
| MasterCard | 42% | 30.5% |
| Visa | 21% | 20% |
| American Express | 28.5% | 15.1% |
In this section American Express does start to fall down. Visa and MasterCard both produce significantly larger margins than American Express. There are two main reasons for this;
1. AXP has significant financial liability and exposure to consumer loans, forcing the company to have a provision for bad loans:
In Q3 2012 AXP made a provision for financial losses of just under $500 million, or 7% of total Q3 revenue. However, if we look back to Q1 2009, AXP provisioned for losses of about $1,500 million, or 31% of total Q1 2009 revenue.
2.
AXP has a significantly smaller exposure to highly lucrative card transaction network.
| Q3 Total Cards
(Millions) | Q3 Total Transactions
(Millions) | Q3 Gross Dollar volume (Billions) | ||
| Worldwide | US | |||
| Visa | 2032 | 20,532 | $487 | $521 |
| MasterCard | 1859 | 8679 | $628 | $290 |
| American Express | 101.4 | – | $146.9 | $73.2 |
The winner of this round has to be MasterCard, with Visa coming in second.
