If you pick great companies, you don't need much money to invest. Take Mastercard (MA -4.71%), for example. Had you bought $100 of stock in 2006 when the company went public and left it alone, it would be worth a whopping $8,423 today.
Mastercard is one of the few dominant payment networks that connect the global economy. While investors probably won't see the same level of growth moving forward (Mastercard is a massive company at this point), investors can expect growth.
What made Mastercard successful?
Mastercard plays an important role in how money moves globally. It's a payment network. Mastercard's payment network is like a telephone line: Data travels across it from point A to point B. When you swipe your Mastercard, information travels between the merchant and financial institutions to verify the funds and authorize the transaction. Mastercard makes money by charging a small percentage of each transaction.
Payment networks have become an oligopoly, meaning a few power players control the market. Companies like Mastercard and Visa are accepted virtually everywhere, so it makes little sense for merchants to waste time with other payment networks. Mastercard is the world's third-leading network; it powers about 24% of the world's credit card transactions.
MA Revenue (TTM) data by YCharts
Payments are a tremendous industry. Research firm McKinsey & Company estimates that payments revenue was $2.1 trillion in 2021. Mastercard enjoyed stellar growth over the years as people migrated to payment cards and away from cash. The company's revenue grew by an average of 11.6% annually for the past decade, totaling $22 billion over the past four quarters.
Mastercard has two catalysts moving forward
Mastercard's success should continue as long as it retains its spot as a top payment network. Investors could enjoy two primary catalysts to keep revenue growth healthy for the next several years.
First, Mastercard can continue riding the secular growth of non-cash payments. McKinsey expects the payments industry to grow from $2.1 trillion to $3 trillion by 2026. That's a nearly-33% increase in overall market opportunity in just five years.
Second is inflation, which consumers don't like, but Mastercard shareholders should. Remember that Mastercard charges a percentage of each transaction. So if inflation is pushing prices higher, transaction sizes are growing, and Mastercard's revenue grows with it. Mastercard's business grows from inflation if payment volume doesn't deter consumers from spending.
Barring a drop in market share, investors should look for solid revenue growth from Mastercard due to these factors. Since the company is very profitable (45% of revenue converts to free cash flow), investors should continue seeing money flowing to the bottom line.
Mastercard offers a balance of growth and safety
Mastercard's fees mean the company's a direct play on the global economy. It might have ups and downs, but it's hard to imagine Mastercard's business going anywhere. The growth catalysts above should provide fertile ground for solid investment returns. Analysts are looking for earnings-per-share (EPS) growth averaging more than 17% annually for the next few years.
That's roughly the pace Mastercard has grown earnings for the past decade; meanwhile, the stock trades near its average price-to-earnings ratio (P/E) over the past 10 years. If that stays the same, investors can capture Mastercard's growth as investment returns, making the stock a potential market-beater.
Anything's possible. Perhaps Mastercard's business is disrupted in some unforeseen way. But barring disaster, Mastercard's potential investment returns could double your money in three to four years. It's not quite turning a hundred bucks into eight grand, but it's a great addition to a long-term portfolio.
