Why American Express Stock Is in the Red Today

By most measures shares of American Express (NYSE: AXP) should be up right now. The credit card middleman's third-quarter earnings handily topped expectations, driven higher by year-over-year revenue growth.

The report's one red flag, however, is undermining any prospective bullishness. As of midday Friday Amex stock is down nearly 5%.

American Express' glass is seen as half-empty

During the three-month stretch ending in September, American Express turned $16.6 billion worth of revenue into adjusted operating per-share earnings of $3.49. That's better than year-ago comparisons of $15.4 billion and $3.30 per share, respectively. Earnings also topped per-share expectations of $3.28. The company even raised its profit guidance for the full year, from a range of $13.30 to $13.80 per share to a revised range of between $13.75 and $14.05.

Last quarter's sales fell just a little short of most expectations though, rattling investors enough to send shares lower rather than higher. This revenue miss is seen as a hint that even American Express' generally affluent cardholders aren't quite as spendthrift as they've been presumed to be of late.

Underscoring this concern is growth of the credit card company's souring loans. Reserves for credit losses were raised 21% from $4.4 billion a year ago to $5.3 billion as of the end of Q3, with net write-offs and 30-day delinquencies also edging slightly higher. Investors may be interpreting the data as a warning that inflation and economic challenges are finally being felt by higher-net-worth households.

More of an opportunity than a warning

Today's setback is jarring. Yet, even with Friday's weakness American Express shares remain right at analysts' consensus price target of $272.33. In this same vein, more analysts rate Amex stock a hold at its current price, rather than a buy. There's room -- and maybe even reason -- for it to slump a little more before all is said and done. Shares were apt to fall today no matter what plausible Q3 numbers the credit card outfit reported.

If you've been eyeing American Express stock as a potential addition to your portfolio, however, the bigger risk from here is still waiting rather than acting.

See, this stock isn't in the habit of suffering major, prolonged setbacks. Given that the company's still growing its top and bottom lines in an economic environment that's basically healthy, the market could soon change its mind about today's selling. This dip is a buying opportunity for long-term investors despite shares' seemingly frothy valuation of 20 times their trailing-12-month earnings.

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American Express is an advertising partner of The Ascent, a Motley Fool company. James Brumley 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.