2 Brilliant Reasons to Be Excited About American Express (AXP) Stock
Key Points
American Express' success comes from its wide economic moat, which protects its competitive position.
The company has a strong brand and a powerful network effect.
- 10 stocks we like better than American Express ›
It's strikingly clear that American Express (NYSE: AXP) has made for an exceptional investment. In the past five years, shares have produced a total return of 260% (as of Oct. 20). They trade at an all-time high these days, most recently buoyed by strong financial performance for the third quarter.
The current valuation might be expensive. However, there are still two brilliant reasons that investors should be excited about American Express stock right now.
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American Express has a wide economic moat
The first reason investors will immediately like this business is because of its powerful brand. American Express offers credit cards at the premium end of the market. They attract an affluent customer base that's willing and able to pay the high annual membership fees to gain access to top-notch perks and rewards.
Having a wealthy clientele helps the business post charge-off rates below the rest of the industry.
American Express has a wide economic moat. Besides the brand, the company benefits from a network effect. It operates the payment platform with what's called a closed-loop system. As the number of American Express active cards increases, the network becomes more valuable to merchants because there's a valuable customer base.
And with more merchants on the network, consumers have more places to shop, which boosts the value proposition.
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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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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