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Shares of Visa (NYSE: V ) hit a 52-week high yesterday. Let's look at how it got here and whether clear skies are ahead.
How it got here
Credit card company Visa has continued to benefit from the general move from cash to electronic payments around the world, and the company’s recent financial results have driven the stock higher. In the fiscal second quarter, the company’s net income rose 23% -- even after taking out a non-cash gain in the quarter -- to $1.1 billion, or $1.60 per share. Payment volume growth, which will drive results in the future, grew 11% as the company focused on expanding in international markets.
The outperformance hasn’t been limited to Visa’s payment network, however. Mastercard (NYSE: MA ) , Discover Financial Services (NYSE: DFS ) , and American Express (NYSE: AXP ) have all seen their stocks rise recently, although American Express’ riskier and more diverse businesses have kept the stock lagging the pack.
At Visa and Mastercard, who don’t carry the default risk of the other two, revenue growth and profit margins have remained extremely high, which has justified their higher P/E ratios.
|Price/Sales||Profit Margin||Quarterly Revenue Growth||Forward P/E|
|Discover Financial Services||2.8||35.9%||3.3%||8.9|
Source: Yahoo! Finance
Visa will hope to gain more international exposure with the Olympics -- one of the company’s main advertising opportunities -- coming up in a few weeks.
Will Visa continue to rise from here? I think so, because Visa has a network that’s more expansive than rivals, and they don’t have to take the same risks as American Express and Discover. It’s a network effect that Visa has worked hard to establish and, as more users around the world use Visa, the company will become more attractive.
Motley Fool CAPS members seem to think the stock will continue to do well, giving it a four-star rating out of five. A total of 4,798 players have made an outperform call, and I'm joining them today with my own outperform CAPScall. A forward earnings multiple of 17.9 is fairly expensive, but the power Visa has in the market can’t be ignored, and I think earnings will continue to grow.