The broader stock market has entered a period of turbulence, with the S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) both declining by 10% from their recent highs. This downturn has raised concerns among investors about the possibility of further declines. However, while the market correction has been notable, American Express (AXP) has seen an even sharper decline, dropping 20% from its peak on January 23, 2025. This level of decline places the stock in its own bear market, prompting questions about whether the financial services giant is now an attractive buying opportunity.
Understanding Market Cycles and Investor Sentiment
Stock market cycles are often driven by shifts in investor sentiment, swinging between optimism and pessimism. Historically, markets rarely settle at a fair middle ground; instead, they oscillate between being overvalued and undervalued. The recent market correction appears to reflect a transition from enthusiastic buying to increased caution.
For individual stocks like American Express, these shifts are often exaggerated. Investors tend to sell off their biggest winners first when sentiment changes, contributing to sharper declines for stocks that previously performed well. The company’s 20% drop follows this pattern, as it had reached an all-time high before the correction.
Assessing American Express’ Valuation After the Drop
At its January 2025 peak, American Express had a price-to-sales (P/S) ratio of 3.5 and a price-to-earnings (P/E) ratio of 23.2, both above its five-year averages of 2.5 and 18.3, respectively. The recent sell-off has brought these figures closer to historical norms, with the P/S ratio now at 2.7 and the P/E ratio returning to 18.3.
Despite this decline, the stock is not yet considered cheap. While the valuation is more reasonable than at its peak, it remains closer to fair value rather than being deeply discounted. This suggests that while American Express is more attractively priced than earlier this year, it has not yet reached a level where it would be widely considered a strong bargain.
Dividend Considerations and Investment Appeal
For dividend investors, American Express’ current 1.2% dividend yield is more attractive than it was at the stock’s peak but remains on the low end of its historical range. Investors focused on yield may find more compelling opportunities elsewhere.
For value investors, the stock does not yet reflect a deep discount that would typically make it a strong candidate for purchase. While it has fallen significantly, further declines or a shift in broader market sentiment might be necessary before it becomes a clear value play.
Growth-oriented investors might see an opportunity if they believe American Express can continue expanding its business, even amid economic uncertainty. However, purchasing the stock at its current valuation would still mean paying close to fair market value rather than securing a discount.
Is American Express a Buy Now?
While American Express’ stock has declined more sharply than the broader market, its valuation still does not present a clear buying opportunity. Although the stock is now more reasonably priced, it is not yet in deep-value territory, making it less attractive for investors looking for a strong discount.
Given the uncertain economic environment, potential buyers may prefer to wait for a more pronounced shift in valuation before committing. While American Express remains a strong company, its current stock price suggests that investors are still paying close to full price for its future growth potential.