Payments powerhouse Visa (V 0.05%) has been one of the top-performing stocks over the past decade. As half of a duopoly in credit card processing with Mastercard, it benefits from a competitive moat that has allowed it to perform consistently across an array of macroeconomic and market conditions.
A testament to Visa's durability is the fact that it is only down 7% year to date at recent prices, while the broader S&P 500 is down by 21%. And if you go back 10 years, Visa has returned nearly 20% on an annualized basis. But if you go back a little further, to the Great Recession, the stock has produced an average annualized return of more than 21% since the beginning of November 2008.
So, if you had invested $5,000 in Visa 14 years ago, how much would you have now?
Visa has returned 21% on an annual basis since the Great Recession
On Nov. 1, 2008 -- a Saturday -- Visa was trading at a split-adjusted $13.84 per share, or $55.36 at the time. While it was on its way to finishing the year slightly down from its IPO price earlier that year, it was still far ahead of the S&P 500, which closed out the year down 37%.
A $5,000 investment in the credit card giant this time 14 years ago would have bought you about 90 shares at the historical price, which would have gone up to 360 shares after a 4-for-1 split in 2015. At recent prices, that would give you almost $74,500 today. That translates to a compound annual growth rate of 21.3%.
And if you had contributed just $100 per month, that $5,000 initial investment in Visa would have blossomed into a little more than $160,000.
Visaʻs performance since the 2008 market crash is particularly relevant, as we are currently through another period of market upheaval right now, with the S&P 500 down about 21% and the Nasdaq Composite off nearly 33% year to date.
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While the factors that led to this bear market are certainly different than what caused the 2008 market crash, it appears that 2022 will probably be the worst year for the stock market since 2008. Likewise, it could present a good buying opportunity for Visa's stock.
A good market to buy
It is impossible to say whether Visa will have the same type of success over the next 14 years, as the market is different today than it was then. The payments industry is changing and evolving rapidly, and there is legislation working its way through Congress that seeks to create more competition for Visa and Mastercard by requiring banks to process electronic credit transactions on at least two networks, including at least one outside the duopoly. It remains to be seen if this will pass, and how much of an impact it has if it does.
But Visa remains an excellent stock, as the largest credit card processor in the U.S., low overhead, high margins, and tremendous efficiency with a 40.9% return on equity. It is also attractively valued, with a forward price-to-earnings ratio of nearly 25 as of Nov. 2.
Visa is still a good buy at today's price, but it may be worth waiting to see where that bill goes, and if its trajectory changes with the next Congress.
But beyond Visa, this exercise is meant to draw parallels to a past down market to show how an investment in a good, undervalued company can really pay off in the long run.
