What started as a small group of bankers back in 1966 called the ICA, or Interbank Card Association, has become one of the largest companies in the global payments processing industry. In spite of its massive size (it has a market cap of $278 billion as of this writing), Mastercard's (NYSE:MA) transaction processing network keeps chugging along, having notched year-over-year revenue growth of 15% and adjusted earnings-per-share growth of 21% during the third quarter of 2019.

Some growth investors might overlook this stalwart because it's already so large, but the double-digit numbers last quarter weren't a one-off occurrence. According to research and services firm G4S, cash is still the most important method of making transactions around the globe. That's the case even in developed markets -- the firm said over half of transactions under $25 are made with cash in North America, and nearly 80% of point-of-sale transactions are in cash in Europe. Put simply, there's plenty of room for digital payments to keep winning.  

Mastercard operates one of the most extensive digital networks, good in more than 210 countries. The company's slow-and-steady progress in the war on cash thus makes this a core holding for investors of all types.

Someone holding a credit card and typing the info into a laptop

Image source: Getty Images.

An impressive 2019 so far

When adding third-quarter results to the first half of 2019, Mastercard is patching together another solid showing so far this year. To date in 2019, the company has processed $4.7 trillion in transactions, a 13% increase over 2018 when excluding the effects of currency exchange rates. That has equated to a 12% increase in revenue, building on the more than 200% increase in top-line expansion over the last trailing-10-year stretch.  

Metric

9 Months Ended September 30, 2019

9 Months Ended September 30, 2018

Change

Revenue

$12.5 billion

$11.1 billion

12%

Adjusted operating profit margin

58.3%

57.6%

0.7 pp

Adjusted earnings per share

$5.81

$4.94

18%

Data source: Mastercard. Pp = percentage point.

My favorite thing about Mastercard, though, is its high and still improving profit margin -- a whopping 58.3% operating margin so far this year. That cash-generating machine doesn't equate to much in the way of dividends (current annualized yield is just 0.5% as of this writing), but share buybacks are the preferred return to shareholders, here. Through three-quarters of the year, management said it had repurchased $5.5 billion worth of shares and had scooped up another $449 million in October leading up to the report. Based on current market cap, that's an additional 2.1% in equivalent yield paid to shareholders in 2019.

A growing list of value-added services

As previously mentioned, Mastercard's growth is still strong, and it's using its cash flow to invest in further expansion. Key to its success as of late have been a number of acquisitions, specifically ones that bolt on to its core transactions processing capabilities. Transactions between financial institutions, cross-border money movements, and data security services have been some of the highlights. 

Mastercard has completed five takeovers so far this year, and all of these acquisitions have been for small, unreported sums of money -- with the exception of software service company Transactis, which, according to Crunchbase, was reportedly purchased for $57 million in May 2019. Together, these non-core services have grown 23% this year, driven by data and cybersecurity solutions.

As the digital payment industry's success has grown, newer upstarts have made inroads, such as PayPal Holdings, which recently became the first non-Chinese company allowed access to that closed-off digital payments market. A slowdown in the global economy also isn't great news for Mastercard, as it is reliant on steadily rising transaction volumes. A one-year forward price-to-earnings ratio of 30.5 (compared to a perhaps overly optimistic forward estimate of 18.3 for the S&P 500) means the stock trades at a premium and is expecting growth to continue unabated.

Nevertheless, primo pricing still looks warranted, here. In spite of a lukewarm outlook due to global economic concerns, Mastercard still expects to keep growing, and fat profit margins should equate to even higher earnings growth. Digital payments have plenty left in the tank, and this industry leader remains one of the best ways to play the movement.