American Express (AXP 2.12%) has achieved a total return of 102% over the last five years. It is worth noting that this return is better than that of the S&P500 Index.

But at the time of writing this article, Financial stock is trading 6% below its all-time high. It might be a good idea to buy on the dip.

Before you do that, consider the top Bull and Bear Arguments for American Express.

Amex Bull Case

American Express is a top brand in the financial services sector. And that explains its success. The company’s cards, such as its Centurion, Platinum and Gold offerings, come with high annual fees, which naturally attract a wealthy customer base that can spend more. Because Amex cards offer top-notch rewards that these customers find valuable, the company has been able to raise its card fees in the past and it hasn’t hurt growth.

Additionally, these higher-income consumers make Amex a less risky stock. The company’s default rates are consistently lower than other credit card issuers, resulting in smaller losses.

Similar to visa And MasterCardAmerican Express operates a payment platform. The company has 144 million cards that are accepted by tens of millions of merchants. This creates a strong Network effects. Merchants want Amex cardholders as customers, so accepting these cards as payment is of great value to them. In addition to the benefits, cardholders have more options for spending money.

Another prominent bull scenario revolves around American Express’s fantastic financial performance. Between 2013 and 2023, revenue grew 84%, while diluted earnings per share (EPS) grew 130% over the same period.

The momentum has continued this year, even as economic uncertainty persists. Executives are forecasting double-digit increases in revenue and earnings per share this year. Growth will be driven by strong international activity as well as new cardholders, particularly younger ones.

Amex Bear Case

As with any company in this industry, one unfavorable factor is how competitive the financial services sector in general – and the credit card sector in particular – really is. Amex has a strong position in the market, but there are other options.

JPMorgan Chasewith its Sapphire Reserve offering, as well as Capital One and its Venture X card are competing with the American Express Platinum Card. Competition for valuable partnerships to attract customers will remain fierce.

Although Amex has a solid financial record, it is also affected by some economic fluctuations. This is normal for companies that lend money and rely on strong consumer spending for success. It is hard to deny that Amex would be hurt in a severe recession.

Depending on how much priority you place on it, valuation could be another argument for bears. Shares currently trade at a price-to-earnings (P/E) ratio of 17.7, which is in line with Amex’s 10-year average of 17.9. Of course, if everything else remains unchanged, investors would prefer a lower valuation multiple as this increases the upside potential. The current P/E ratio reduces the Safety margin.

Is American Express stock a buy?

There is no doubt that both the bull and bear scenarios are compelling. It is crucial for investors to understand both sides of the argument for any company they have on their radar or in their portfolio. And Amex is no exception.

I still think this stock is a worthwhile investment. The shares seem fully valued, but the quality of the company speaks for itself.