Over the past decade, Visa (V +1.65%) shares have soared 404%, easily beating both the S&P 500 and the Nasdaq Composite Index during the same time. Steadily rising revenue and profits will definitely help to push up the stock price of any company. A broad secular trend toward digital payments and away from cash is also a vital part of the investment thesis for this business.
Is Visa stock, a proven winner for anyone's portfolio, a buy right now? Let's examine this card payments giant to figure out the best course of action for investors.
NYSE: V
Key Data Points
Still posting double-digit growth
While many other businesses struggle in what has been a period of increasing economic uncertainty, Visa continues humming along. Revenue of $8 billion in the fiscal 2023 second quarter, ended March 31, was up 11% year over year. And net income totaled $4.3 billion, good for a 17% jump from Q2 2022. That net profit margin of 54% is remarkable.
As travel picks up again, following a period of pressured demand from the pandemic, Visa is benefiting. Cross-border payment volume was up 24% year over year, faster growth than overall payments volume. "On the cross-border front, the travel recovery trend has been steady and generally in line with our expectations so far in fiscal year '23," said CFO Vasant Prabhu on the latest earnings call. Management also mentioned travel into Asia being stronger than pre-pandemic levels.
The added benefit investors get from owning a company like Visa is that it's a natural inflation hedge. Because it takes a tiny cut of every transaction that occurs on its network -- an assessment fee of less than 0.15% -- if prices for things go up and consumers are required to spend more, Visa's revenue gets a boost. That's quite an advantageous position to be in.
A strong economic moat
It's also hard to understate Visa's importance in the daily lives of both merchants and individuals. Using cards as a method of payment is so ingrained in our society that Visa's competitive standing is almost impossible to disrupt. Along with its duopoly position with Mastercard, Visa has a mutually beneficial relationship with numerous banks that issue its branded credit cards, as well as acquirers that bring on new merchants to the network.
Visa has 100 million merchant locations and more than 4 billion outstanding cards all plugged into its payments platform. Just think about the network effects at play. Because there are so many customers using Visa cards, merchants have no choice but to accept them. And because paying with Visa is so ubiquitous across the world, it's hard to find someone who doesn't have one of these cards in his or her wallet. How would anyone be able to build a competing platform like this from scratch? I don't think it's possible.
That means Visa has the makings of being a long-term holding in one's portfolio. Other industries, like streaming entertainment, e-commerce, and retail, to name a few, have to deal with intense competition that can derail companies' prospects in no time. For Visa, this is less of a concern.
Consider the valuation
There's no denying that Visa is a wonderful business, but investors should also take a closer look at the valuation to determine if the stock is a buy. Right now, shares trade at a trailing price-to-earnings (P/E) ratio of 30.4. That's below Visa's trailing five-year average P/E multiple of 35.6, and it's meaningfully below Mastercard's P/E of 37.
Consequently, investors might be ready to buy shares immediately. Visa has been a winning investment throughout the years, and it's difficult to see that great track record ending anytime soon.
But it's also worth mentioning that Visa is way more expensive than the overall S&P 500. And the stock is trading at a sizable premium to where it was at just eight months ago. Investors know this is a quality business, so its shares rarely go on sale at a discount.
If you prioritize the quality of a company more than its P/E ratio, then buying Visa is a no-brainer decision. On the other hand, if the stock's current valuation is forcing you to hesitate, then maybe it's best to practice patience and wait for a better entry price.
