(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Shares of American Express Co. (AXP) have stagnated for most of 2018, dramatically underperforming the S&P 500's rise of more than 6%. That may be about to change, as shares break out and push the stock higher by more than 12%. A key driver may be robust growth, with earnings and revenue forecast to rise 20% in 2018, analysts say.
The technical chart shows a bullish continuation pattern called a rising triangle, created by a combination of a technical uptrend and resistance zone. With the stock currently trading around $103, shares are breaking out rising above the resistance zone, and that suggests shares will rise even higher. Based on the technical formation, the stock’s next level of resistance is likely not to come until $116.
The relative strength index (RSI) has been trending lower since October 2017 and is now starting to show signs of reversing. Since mid-June, the RSI has increased on a series of higher lows, and that suggests bullish momentum is coming back into shares.
One reason why the stock may be breaking out is the strong business forecast. Analysts see earnings climbing by nearly 24% this year, followed by estimates for better than 10% growth in 2019 and 2020. Revenue is expected to grow by more than 20% this year, followed by forecasts of more than 7% growth over the next two years.
The optimistic forecast also has analysts bullish on the stock, with shares forecast to rise by 8% to an average price target of $111. The average target at the beginning of the year was $101.
With the technical chart pointing to a higher price, and analysts looking for robust earnings and revenue growth, there may be little standing in the way of the stock rising over the short term. However, for any gains to last, the company will not only need to deliver but also beat on what appears to be big expectations.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.