While most investors who are familiar with Visa (V -0.23%) would likely agree that it is a fantastic business, its share price hasn't held up recently. In 2023, the stock is up 16% (as of Aug. 7), a respectable return. But this lags the 17% gain of the broader S&P 500.
Nonetheless, over long periods of time, Visa has been a wonderful investment to have owned. But what does the future hold? Is Visa a good stock to buy right now? Here's why I think it is.
Visa is resilient
All the talk of inflation in the past couple of years, as well as economists predicting a recession, can certainly be scary for investors. During uncertain economic times, it's a smart idea to try to identify resilient companies, or those that continue to perform well no matter what's going on.
Visa is one such business that fits this description. In the past 10 fiscal years (2013 through 2022, which ended Sept. 30), the company's average annual revenue growth rate was a superb 11.1%. And fiscal year 2020, a time scarred by the onset of the global coronavirus pandemic, was the only year when sales declined. Even then, Visa's revenue only fell by 4.9%.
More recently, Visa continued posting solid gains, increasing revenue by 12% in the latest fiscal quarter (the third quarter ended June 30). The latest financials were boosted by strong cross-border payments volume, a trend that has happened on the backs of heightened consumer demand for travel.
Investors also don't have to worry about the impact of inflation with a business like Visa, as it earns fees based on the amount of money that moves across its network. Payment volume was up 9% in the last quarter, a rate that was down from the second quarter of 2023. This was mostly due to cooling inflation, with CFO Vasant Prabhu saying on the Q3 earnings call that the "consumer has remained resilient so far."
Owning a company that you're confident can weather whatever storm comes its way is worth taking a closer look at.
Visa has a wide moat
I believe that the most convincing argument for why investors should own Visa shares is just how wide its economic moat is. A term that was made popular by Warren Buffett, an economic moat is simply a trait or combination of multiple traits that allow a particular business to financially outperform competitors for extended periods of time.
Anyone who follows Visa knows that it benefits from network effects. That's key to its economic moat.
There are 100 million merchant locations across the world that accept Visa as a method of payment. And there are 4.2 billion cards (up 7% year over year) circulating out there that have the Visa logo on them. As Visa's network gets bigger, it becomes more valuable for existing merchants and cardholders, as well as new merchants and cardholders. That's because the potential customer base for merchants, and the potential places to shop for cardholders, is already massive, and it expands over time.
It's impossible for a newcomer to create a huge network like this from scratch, as Visa is already so ingrained in the fabric of our society, and using its cards has become so convenient. Even fintech businesses like PayPal and Block have payment offerings that largely build on top of Visa's infrastructure.
What about Visa's current valuation?
A discussion about whether a stock is a buy or not isn't complete without considering the valuation. As I noted above, the market is largely aware of how great a business Visa is. It has posted impressive revenue and earnings growth throughout its history. And it consistently sports an operating margin in excess of 60%, with tremendous free cash flow generation.
These outstanding fundamentals have resulted in a stock that usually commands a premium valuation. As of this writing, shares trade for a forward price-to-earnings ratio of 27.9. That's more expensive than the S&P 500's forward price-to-earnings multiple of 20.8.
But Visa is a significantly higher-quality company than the average business out there. So, it might be worth paying up for the stock right now.
