To The Moon

I’m Buying This Stock!

Hi Everyone,

As the year winds down, I hope your portfolios are holding up well. Feel free to share your progress—whether good or bad—in the comments below. Let’s encourage and motivate each other as we wrap up the year together.

I just returned from a much-needed holiday, which was a great opportunity to relax and recharge. But, as any investor knows, the world of investing never really takes a break. While I was away, I kept a close eye on a few stocks in my watchlist. Recently, there was a bit of a market pullback—likely due to the release of the Fed’s 2025 interest rate outlook. While fear crept into the market, I see this as a golden opportunity to dig into some great companies and uncover valuable opportunities.

So, what’s my latest portfolio addition?

Before diving in, here’s a quick update on my portfolio: my estimated year-to-date return on investment (ROR) stands at 21.96%. It’s not stellar, but I’d say it’s a solid performance.

Now, onto the exciting part—I’ve just added **American Express (AXP)** to my portfolio. Let’s break it down.$American Express(AXP)$  

### The DCF Model and Eight Pillars

Taking a look at my Discounted Cash Flow (DCF) analysis (see image below), American Express checks off **six out of eight pillars** as green. Does that mean it’s an automatic buy? Not necessarily, but it’s definitely worth further consideration.

**1a. The Two Reds**

The two red flags relate to their higher long-term liabilities, which isn’t surprising for a financial company. Their balance sheet naturally includes more significant liabilities due to the nature of their business.

**1b. Free Cash Flow (FCF)**

Their five-year FCF average is an impressive $13.3 billion, and they distribute just 0.92% as dividends (around $1.87 billion). This indicates they’re comfortably managing their payouts.

**1c. Return on Invested Capital (ROIC)**

The ROIC is under 9%, which might seem low compared to other sectors. However, this is typical for financial firms due to high operating costs, regulatory requirements, and interest rate environments.

Overall, I’m comfortable with these two red flags.

**On the Green Side**

American Express demonstrates solid growth, boasting a five-year Price-to-Free-Cash-Flow (P/FCF) ratio of 12x and a Price-to-Earnings (P/E) ratio of 19x. These metrics reflect the company’s efficient operations and consistent performance.

### About American Express

Founded in 1850, American Express operates in over 130 countries, offering a wide range of financial products and services. Here’s a quick breakdown:

**Business Segments**

- **Consumer Services:** Issues American Express-branded cards with rewards, benefits, and services.

- **Commercial Services:** Provides corporate cards, travel services, and expense management solutions.

- **Global Merchant and Network Services:** Processes transactions and supports merchants in accepting American Express cards.

**Products and Services**

- Credit and charge cards (Platinum, Gold, Green) with robust rewards programs.

- Travel services, including booking and insurance.

- Expense management solutions for businesses.

- Digital payment options via Apple Pay, Google Pay, and Samsung Pay.

With competitors like Visa, Mastercard, and Citigroup, American Express holds its own as a powerhouse in the financial services sector.

### My Analysis and Assumptions

After thorough analysis, I calculated DCF values for low, medium, and high assumptions, factoring in a margin of safety. Based on this, I purchased shares at $295 apiece, representing a small portion of my portfolio. If the price dips further, I’ll be ready to buy more.

### Final Thoughts

Thank you for reading! I hope my analysis provides some useful insights if you’re considering American Express or other similar stocks. Next year, I’m planning to launch a channel as a hobby to share stock analysis and real-life investing experiences.

If you have any feedback, please drop it in the comments below. I’d love to hear your thoughts!

Cheers,

Roy