Is It Safe? American Express Maxed Out

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American Express(AXP Quote) has more than doubled in the past two months on optimism consumers are ready to crack open their wallets as the economy slowly starts to grow again. Shares of Visa(V Quote) and MasterCard(MA Quote) also have rebounded.

Investors ought to temper their enthusiasm. The share prices of credit card companies are frighteningly high relative to earnings prospects and the profit-payoff date seems frustratingly elusive. A decline in consumer credit and an increase in anti-credit-card-fee sentiment in Congress and the White House are pulling the reins on further gains.

Retail sales jumped earlier this year after slumping 4.3% during the final quarter of 2008, when the credit crisis was in full swing and the economy contracted. With Americans confronting an unemployment rate of 8.9% and rising, they are sure to shirk the use of plastic.

The run-up in stocks of credit card companies has left them richly priced, considering the uncertainty facing consumers. American Express sells at 36 times this year's earnings, while Visa is at 24 and MasterCard, 18. The S&P 500 index's price-to-earnings ratio is 14.5. Those lofty multiples leave little room for disappointment.

The buoyant recovery in credit card company stocks was dampened by reports that retail sales slumped 0.4% last month following a setback of 1.3% in March. The dismal news corresponded with progress in Washington on a bill to limit card companies from raising interest rates without giving consumers 45-day warnings, along with other measures that would hurt earnings.

The proposed constraints on credit-card rules would likely impact the bottom lines of Visa and MasterCard less than they would American Express, as their revenue is derived primarily from licensing fees from participating banks and transaction processing. Banks, such as Citigroup(C Quote), Bank of America(BAC Quote) and Capital One(COF Quote), to which Visa and MasterCard license their credit card brands, bear all the risks of late payments and debt write-offs.