American Express (NYSE:AXP) raised its full-year revenue outlook in its most recent quarterly report. Since then, the stock has cooled off instead of celebrating. That disconnect is the whole story.
Most people know Amex as the card you see at business dinners and in airport lounges. Behind it sits an unusual model. The company issues its own cards and runs its own payment network, so it earns annual fees from cardholders, swipe fees from merchants on every purchase, and interest on balances. Even with its distinct hybrid model and premium cardholder base, American Express doesn’t land a spot among the 10 Best Undervalued Stocks to Buy in October. Its customers skew affluent, and they spend a lot. So which should you trust: a business that keeps beating its own targets, or a share price that has lost steam? The answer depends less on headline growth than on what Amex spends to get it.
Premium Customers, Premium Economics
The edge is the customer base. People who pay hefty annual fees for perks tend to use the card heavily, which feeds merchant fees. They also tend to stay, so fee revenue behaves a bit like a subscription.
The second quarter of 2026 showed that model at work. Billed business (the total spent on Amex cards) rose 9% to $455.8 billion. Credit stayed calm, too, with the net write-off rate (the share of loans written off as uncollectible) holding at 2.0%, flat with a year earlier.
Rising spending with steady losses is exactly what a high-income customer base is supposed to deliver. It’s also why Amex sits in a very different conversation than lenders focused on subprime borrowers.
The Platinum Bet Is Working
Revenue net of interest expense grew 10% in the second quarter. Diluted EPS climbed 11% to $4.53, up from $4.08. Management then raised its full-year 2026 revenue growth forecast to 10% and stuck with EPS guidance of $17.30 to $17.90.
The more telling detail came from CEO Stephen Squeri. He said the Platinum portfolio is now the fastest-growing part of the U.S. consumer business, following a refresh of the US Platinum Card. He also highlighted continued success with Millennial and Gen Z customers, whom the company sees as carrying greater lifetime value. Younger customers embracing a high-fee card suggests the brand still has pull with the next generation of big spenders, a theme that also runs through other premium travel card issuers.
Buybacks quietly help, too. Average diluted shares fell 3% to 679 million from 699 million, so each share claims a bigger slice of the profit.
Is Amex Spending Too Much to Grow?
Here’s the catch. Expenses rose 12% to $14.5 billion in the second quarter, outpacing revenue, and the company named the Platinum refresh as one driver. Lounges and richer rewards cost real money. If rivals keep upping their own perks, holding on to premium customers could get pricier every year.
Two other items shaped the quarter. Provisions for credit losses fell to $1.1 billion from $1.4 billion, helped by a reserve release compared with a reserve build a year earlier. That flattered profit. Meanwhile, the effective tax rate jumped to 23.6% from 18.7%, which is why net income rose a slower 8%.
The objection is fair, but the results partly answer it. Spending that produces 10% revenue growth and an 11% EPS gain looks more like investment than waste, a dynamic underlined as Jim Cramer backs American Express (AXP) and Capital One (COF) as consumer spending stays strong. The real risk is expenses that keep outrunning revenue after the refresh buzz fades.
A Discount to Its Own Past
At 17.47 times forward earnings, as of October 12, Amex trades slightly below its 5-year average P/E of 17.90. Put simply, investors are paying a little less for each dollar of expected profit than they usually have, even though guidance just moved up, not down.
Growth makes that more interesting. EPS is expected to grow 14.35% in 2027. Paying less than 18 times earnings for mid-teens profit growth isn’t a stretched price for a business with this kind of customer loyalty.
The sector comparison cuts the other way. The financial sector trades at 10.83 times forward earnings, so Amex carries a clear premium to the typical financial stock. That premium reflects a fee-heavy model that leans on lending far less than traditional banks with big loan books do. Still, the stock is cheap only relative to its own history, not in absolute terms.
Hedge fund interest ticked up, with 85 funds holding the stock in the most recent quarter, up from 83 in the prior one. Short interest stands at 2.06% of the float, which points to relatively limited bearish positioning.
Growth Has Outrun the Multiple
The evidence points to a business growing faster than its valuation implies. Revenue, EPS, and guidance all moved the right way, while the multiple slipped below its usual range. For long-term investors who want a quality financial with steady double-digit earnings growth, the setup looks better than the stock’s recent drift suggests. The upcoming third-quarter report is the test. If expenses keep running ahead of revenue, or the write-off rate starts climbing, that below-average multiple would start to look deserved.
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