As the financial markets collapsed in 2008, American Express(AXP Quote) fell further and faster than its big credit card competitors MasterCard(MA Quote) and Visa(V Quote). The company collected $3.4 billion in TARP funds amid concerns about rising defaults and debt.
This year, the company repaid the money it received from the Troubled Asset Relief Program, and the stock has quadrupled. As stores tally their holiday sales, investors are waiting to find out if American Express shares hit their peak or have room to grow.
Regardless of the outcome, American Express stock does not look like a bargain now. Investors who rode the recovery may do well to count their blessings and get out with sizable gains. Others looking to get into a credit card stock should consider MasterCard and Visa, which have less leverage and a wider appeal to merchants and customers.
New York-based American Express has warned investors that it probably won't be as profitable next year as it has in the past. The company usually aims for a return on equity of 34%, but recently forecast a rate closer to 20%. Its ROE is hovering around 13%, still far from the reduced target. Weak liquidity in the credit markets has made securitization difficult, hurting credit card companies who resell their loans.
While the three major credit card companies have price-to-earnings ratios in the high teens, MasterCard's ROE of 56% trounces American Express's return. While Visa's 10% ROE lags American Express's, Visa has a more attractive PEG ratio of 1.2 vs. American Express's lofty 2.66. MasterCard's PEG ratio is also 1.2, which suggests that analysts predict stronger growth rates for MasterCard and Visa than for American Express. It might mean there's little value left in the stock after this year's gain.
This year, the company repaid the money it received from the Troubled Asset Relief Program, and the stock has quadrupled. As stores tally their holiday sales, investors are waiting to find out if American Express shares hit their peak or have room to grow.
Regardless of the outcome, American Express stock does not look like a bargain now. Investors who rode the recovery may do well to count their blessings and get out with sizable gains. Others looking to get into a credit card stock should consider MasterCard and Visa, which have less leverage and a wider appeal to merchants and customers.
New York-based American Express has warned investors that it probably won't be as profitable next year as it has in the past. The company usually aims for a return on equity of 34%, but recently forecast a rate closer to 20%. Its ROE is hovering around 13%, still far from the reduced target. Weak liquidity in the credit markets has made securitization difficult, hurting credit card companies who resell their loans.
While the three major credit card companies have price-to-earnings ratios in the high teens, MasterCard's ROE of 56% trounces American Express's return. While Visa's 10% ROE lags American Express's, Visa has a more attractive PEG ratio of 1.2 vs. American Express's lofty 2.66. MasterCard's PEG ratio is also 1.2, which suggests that analysts predict stronger growth rates for MasterCard and Visa than for American Express. It might mean there's little value left in the stock after this year's gain.
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