Is Buying This Stock Favored by Warren Buffett a Clear Investment Decision at Present?
American Express (AXP) continues to impress with its strong financial performance and robust network effects, maintaining a positive but cautious outlook for long-term growth.
Recently, American Express reported impressive Q2 2025 results, with revenue up 14% year-over-year to $17.2 billion and earnings per share (EPS) exceeding analyst expectations by 5.1%. However, net income saw a slight dip (3.1%) due to increased expenses. The company reaffirmed its 2025 guidance, expecting 8-10% revenue growth and EPS between $15 and $15.50, with consensus EPS growth estimated at around 14.3% year-over-year[1][3][5].
American Express's success is underpinned by a strong economic moat, a key feature appreciated by the Oracle of Omaha, Warren Buffett. The company benefits from a widely accepted and trusted brand, a premium product line, and significant network effects — as cardmember spending hit record levels, encouraging merchants and consumers to prefer its platform[3][4].
The company's brand reputation supports customer loyalty and premium pricing power, maintaining its competitive advantage in a crowded payment services market[4]. Berkshire Hathaway, led by Warren Buffett, holds American Express as its top stock in its public equities portfolio, owning 21.6% of the outstanding shares[2].
However, it's important to note that the current P/E ratio of American Express is higher than its historical average, reflecting elevated market expectations for continued growth and profitability. This premium valuation suggests limited margin for valuation error and could make the stock sensitive to earnings misses or broader market corrections[5].
While the P/E ratio is not egregiously expensive, it's not a bargain either. American Express's business model possesses very favorable characteristics, with more cardholders leading to more value for merchants due to increased sales opportunities[6]. The company's powerful network effect ensures that the utility for cardholders increases as the number of merchant acceptance locations grows.
Among analysts, the consensus rating is a "Moderate Buy" with some bullish price targets offering 9-27% upside; however, this reflects a more tempered view than a month prior, with increased "Hold" ratings and a few "Sell" opinions, indicating some caution at current price levels[3][5].
In conclusion, American Express's strong fundamentals, economic moat, and brand strength position it well for solid long-term earnings growth and business resilience. However, the elevated P/E ratio means investors should be mindful of valuation risks and potential margin pressure. The stock is generally favored by analysts but with a moderate risk outlook, reflecting a premium for quality but less room for disappointment.
References:
[1] American Express Q2 2025 Earnings Release (2025) [2] Berkshire Hathaway's Top Stock Holdings (2025) [3] American Express Q2 2025 Earnings Call Transcript (2025) [4] American Express Annual Report (2024) [5] American Express Stock Analysis (2025) [6] American Express Business Model (2025)
Investing in American Express could offer promising long-term growth potential, given its strong financial performance and robust business model. The company's success stems from a favorable economic moat, a trusted brand, premium product line, and significant network effects. However, investors should be aware of the higher-than-average P/E ratio, signaling a premium valuation and potential margin pressure.
Finance analysts generally recommend a Moderate Buy for American Express, acknowledging its strong fundamentals but also highlighting valuation risks. However, some bullish price targets suggest a potential upside of 9-27%.
Money managers might find it beneficial to closely monitor American Express's financials, as its resilient business model offers possibilities for solid earnings growth but also carries a need for cautious management due to the elevated P/E ratio.
