What happened

Shares of Mastercard (NYSE:MA) climbed 40.2% in the first half of 2019, according to data provided by S&P Global Market Intelligence.

The company finished 2018 with tremendous momentum, as revenue and adjusted (non-GAAP) earnings per share rose 17% and 40%, respectively, in the fourth quarter. Mastercard's consistency in generating robust growth rates like this every year is why investors typically award the shares a premium valuation.

A young woman using a laptop and holding a credit card in her hand

IMAGE SOURCE: GETTY IMAGES.

The company reported a strong start to 2019, with revenue and adjusted earnings up 13% and 24% year over year, respectively, on a currency-neutral basis. However, the main reason for the 40% climb in the stock price can be attributed to an increase in the forward price-to-earnings ratio, which was 24 at the start of the year, but has risen to 35 recently.

So what

Investors are increasingly bullish on the company's prospects, due to the increasing adoption of digital payments and Mastercard's investments in areas of the business that should keep the momentum going.

Mastercard recently partnered with Goldman Sachs to launch the new Apple Card, which takes advantage of Mastercard's tokenization technology to prevent fraud. Mastercard is also looking to partner with Goldman Sachs on other new products.

The payments leader is also making headway with other partners, including Target, Japan Airlines, and MercadoLibre's fast-growing e-commerce platform in Latin America. Mastercard has also made a few acquisitions recently, such as Ethoca and Vyze; they will build on the company's advantage in fraud prevention and help Mastercard serve merchants that are starting to offer more finance options to consumers, including "buy now, pay later" payment plans.

Now what

There's plenty of momentum at Mastercard, but the expansion in the stock's forward P/E may leave limited upside in the near term. The higher valuation is a head-scratcher, since management's three-year outlook calls for slower growth through 2021 compared to the last three years.

Mastercard's revenue and adjusted earnings increased at compound rates of 15% and 28%, respectively, from 2016 through 2018. However, over the next three years, the outlook calls for revenue growth in the low teens, and adjusted earnings in the high teens.

It's questionable whether the stock can continue to deliver strong gains for investors in the short term, especially since on a trailing P/E basis, shares are trading at their highest valuation in the last decade.

To justify the stock's expensive price tag, investors will certainly be looking for more impressive results.