In this article I am going to analyze American Express Co. Stock which its ticker (AXP). In this analysis I am not going to use the earning per share and its growth rate and the (P/E) ratio, Instead I am going to use something is more helpful to analyze financial organization which is Price/Book value ratio.
First let us see what is the growth rate of AXP’ Book or equity value through the last five years:
As you can see the equity increased from year 2017 where it was 18.26 Billion until it reached 24.71 Billion in 2022 with growth rate equal to 6.23%.
Now that we have the growth rate of AXP equity in the last years, we are going to use this growth rate to estimate what will its equity be in 2027 ,which is five years from now by applying the following formula:
FV=PV(1+i)n
- Where
- PV = AXP’s Equity in year 2022 = 24.71 Billion.
- i = growth rate of Book value estimated above = 6.23%
- n = years of investment = 5 years in 2027
By substitute the numbers estimated early in the above formula, I end up with AXP’s Equity in year 2027 equal to 33.43 Billion$.
Second, we need to find how much the equity per share will be in 2027 and all what we need to do is to divided the estimated equity above for year 2027 by the total number of shares for AXP and that will equal to:
(Equity/Share)= (33.43 Billion) / (744.19 Million) = 44.9
Now we will see how does the (Price/Book or equity) ratio was doing in the last five years:
Now we can estimate two scenarios for AXP’s stock price which is Bull market and the bear market.
For Bull market, I am going to take the highest (P/B) ratio which was 6.22 in year 2022, to see what will be the price of AXP’s stock in 2027:
Bull market AXP Stock’s price in 2027= (6.22)*(44.9) = 279.28$.
For Bear market, I will take the lowest (P/B) ratio which was 3.1 in year 2017, to see what will be the price of AXP’s stock in 2027.
Bear market AXP Stock’s price in 2027= (3.1)*(44.9) = 139.19$.
As of writing this article, American Express Co. stock price is 165.7 $ which is below Bull market estimated price and above Bear market estimated price, therefor, I believe I am going to wait for a correction movement for the stock to hit the price of bear market or near by and then invest in AXP’s stock, however if this condition does not satisfy, then I am going to pass this investment.
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