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Amidst concerns of a looming recession and rising consumer debt levels, American Express (NYSE: NYSE:) has managed to maintain a superior credit quality and attract a significant number of younger customers. Today, the company is known for its luxury American Express Platinum card and operates the world’s third-largest payment network. Despite the inherent credit risk associated with retaining credit card loans on its balance sheet, American Express mitigates this by focusing on premium customers. This strategy has led to a high-quality customer base and secured its position as a three-decade presence in Berkshire Hathaway (NYSE:)’s portfolio as the third-largest holding.
In addition to its established reputation among affluent consumers, American Express has successfully appealed to Millennial and Gen Z demographics. These younger customers represent 60% of the 12.5 million new cards issued last year, fueling an 18% increase in spending through the company’s network. This growth comes at a time when the consumer finance industry is facing potential economic downturns and consumer debt exceeding $1 trillion.
Nevertheless, American Express stands out with a 2% net write-off rate, which is significantly better than the industry average of 3.38%. The company has also proactively made provisions for credit losses, preparing for any forthcoming economic challenges. With an annual fee of $695 for its Platinum card, American Express continues to leverage its luxury branding to sustain growth and financial stability.
InvestingPro Insights
In line with the robust growth and stability exhibited by American Express (NYSE: AXP), real-time data from InvestingPro substantiates the company’s strong financial standing. With an adjusted market capitalization of $112.5 billion and a P/E ratio of 14.47, the company’s financial metrics indicate a healthy financial position. Moreover, the company’s revenue growth for the last twelve months as of Q3 2023 stands at 9.58%, showcasing its ability to generate increasing revenues despite economic uncertainties.
InvestingPro Tips highlight a couple of key strengths of American Express. The company is known for its high earnings quality, with free cash flow exceeding net income, and its ability to yield a high return on invested capital. This underlines the company’s efficient use of capital and its ability to generate a significant amount of cash. Moreover, the company’s strength in maintaining dividend payments for 53 consecutive years is a testament to its consistent performance and commitment to returning value to its shareholders.
For those interested in a deeper dive into the company’s financials and strategic position, InvestingPro offers an additional 10 insightful tips and a wealth of real-time data. These tools provide a comprehensive view of the company’s performance and can be invaluable for making informed investment decisions.
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