Where Will American Express Be in 5 Years?

It seems like there are an unlimited number of companies out there offering credit cards. That might be the case, but American Express (NYSE: AXP) stands out above the crowd. Founded in 1850, the business has carved out a dominant position at the premium end of the market. And this has resulted in durable success.

This financial stock has generated a total return of 238% in the past five years (as of Dec. 12), crushing the overall market. Where will American Express be five years from now?

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The growth strategy is straightforward

I have a very high degree of confidence that American Express' business will be bigger and more powerful five years from now than it is today. Of course, the gains going forward might not resemble the past. But management is optimistic about the company's future. It previously revealed a goal for revenue to increase at a compound annual rate of 10% in the long run, with diluted earnings per share rising at a mid-teens yearly clip.

The company's growth playbook is simple. It starts with acquiring more card members. Between the third quarter of 2020 and Q3 2025, this figure grew by 36%, with American Express now counting 151.2 million active cards. It's encouraging to see the business bringing on younger customers. The leadership team said on the latest earnings call that Gen Z and millennial consumers have strong engagement.

Another factor is getting these card holders to increase their spending over time. The average spend per card was $6,387 in Q3, up 58% in the last five years. By being accepted at more locations worldwide, while also consistently introducing valuable partnerships and rewards, the value proposition can speak for itself.

American Express has pricing power

Another factor that can have a notable impact on the company's success is pricing power. American Express' strategy involves occasionally raising the yearly fees on its cards. The Gold card saw its fee increase to $325 last year, while the Platinum card's fee was hiked to $895 this year. Average fee per card has jumped 72% since Q3 2020.

It might seem silly that people would pay annual fees to be able to use a specific credit card. This is a key part of how the industry operates, though. And American Express excels in this regard, thanks to its incredible brand strength. In the minds of consumers, being able to pull out an Amex card when paying for something might feel like status signaling.

Besides providing top-notch perks and rewards, it helps that the company targets a more affluent customer base that has higher spending power. This keeps net charge-offs in check, which was a reported 1.9% in Q3, controlling losses in the process. American Express also deliberately markets itself as the premium credit card offering in the market.

Valuation might be a headwind

With shares up 29% in 2025, the momentum has continued. As a result, the price-to-earnings (P/E) ratio sits at 25.7. That's not a bargain valuation; it's the most expensive multiple in the past three years.

Investors who are concerned about the valuation might take comfort from the fact that Berkshire Hathaway is a sizable investor, owning 22% of American Express' outstanding shares. The Warren Buffett-led conglomerate has owned the business for quite some time, so he's probably not worried about the current valuation. But investors can figure out that the Oracle of Omaha believes this is a high-quality company.

Looking out five years from now, profit growth will provide a tailwind to the Amex share price. However, the rich P/E multiple can be a headwind, as investor expectations right now seem elevated. I see the stock being higher in five years, but I'm not sure it can outperform the overall market.

American Express is an advertising partner of Motley Fool Money. Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.