The foundation of prosperous long-term investing is built on owning the highest-quality businesses in industries that will grow in importance with each passing year.
Because the global economy depends on the timely and orderly completion of financial transactions between two or more parties, the payments industry is a safe bet for the long haul. As the second largest payments processing company in the world behind Visa (V 0.88%), it's hard to imagine a future in which Mastercard (MA 1.00%) doesn't continue to do well.
But is the financial technology stock a buy? Let's dive into its fundamentals and valuation of this fintech to address that question.

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Business is booming for Mastercard
On Jan. 27, Mastercard reported impressive fourth-quarter earnings results.
Mastercard recorded $5.22 billion in net revenue during the fourth quarter, which represented 26.6% growth from the year-ago period. This was slightly ahead of the $5.17 billion in net revenue that analysts had been predicting for the quarter. But how did Mastercard beat out the analyst consensus for the ninth quarter out of the most recent 10?
Mastercard's robust net revenue growth was the result of consumers, businesses, and governments around the world adapting to the ongoing COVID-19 pandemic, according to Chief Executive Officer Michael Miebach's opening remarks during its recent earnings call.
This helps explain why Mastercard's gross dollar volume was up 23% year over year on a local currency basis to $2.1 trillion in the fourth quarter.
And thanks to the reopening of several borders in the fourth quarter, Mastercard's cross-border volumes soared 53% higher over last year. What's really encouraging is that this works out to 109% of the pre-pandemic 2019 levels per Chief Financial Officer Sachin Mehra's opening remarks in the earnings call.
Even with the omicron variant having a moderate effect on cross-border travel at the end of the quarter, Mastercard anticipates that cross-border travel will again recover to pre-pandemic levels by the end of this year.
Finally, switched transactions (the total number of transactions that Mastercard's networks processed) surged 27% in the fourth quarter.
Moving to profitability, Mastercard reported $2.35 in non-GAAP (adjusted) diluted earnings per share (EPS) for the fourth quarter. Against the year-ago period, this equates to a 43.3% growth rate. This surpassed the analyst forecast of $2.21 for the quarter, which was the ninth quarter out of the past 10 that the company has done so.
Mastercard's higher revenue base, and a 450-basis-point year-over-year expansion in net margin to 44.4%, are responsible for the spike in the company's fourth-quarter earnings.
A promising industry outlook should sustain growth
Mastercard closed 2021 with a great quarter. And based on analysts' predictions that Mastercard's annual earnings growth will accelerate from 19% over the past five years to 25% in the next five years, the company's growth story should continue. Why do analysts believe this will be the case?
As the world becomes more digitalized and online shopping continues to grow, so too will the need for payment methods to adapt. This should lead to the continued displacement of cash used to complete financial transactions. This is precisely why forecasts envision that the global payments market will compound at about 7% annually from $1.5 trillion in 2020 to $2.9 trillion by 2030.
Simply put, Mastercard's size and scale in an expanding industry should bode well for the company's growth potential.
The balance sheet is nearly perfect
Another attractive trait of Mastercard is its healthy financial position.
Mastercard's net debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio came in at 0.5 last year ($6.01 billion in net debt/$11.46 billion in EBITDA). This demonstrates that Mastercard is using debt responsibly, which lowers its risk of bankruptcy to virtually zero in the foreseeable future.
Mastercard is a sensibly valued growth stock
Even though Mastercard stock is unchanged in the year to date against the S&P 500's 8% decline during that time, the stock looks like it is rationally priced.
That's because while Mastercard's forward price-to-earnings ratio of 28.7 is well above the credit-services industry average of 14.7, the multiple appears to be justifiable. This is due to the fact that unlike many other companies in its industry, Mastercard doesn't extend credit directly to customers and holds up better in recessions as a result. And taking Mastercard's 25% annual earnings growth forecast into account, the price-to-earnings-growth ratio seems fair at 1.1.
Mastercard's 0.5% dividend yield is also slightly above its 13-year median, which also supports the case that the stock is a reasonable value at this time.