Successful investing involves choosing high-quality stocks and sticking with them for years, or even decades. It's important to learn how to ignore the noise and the short-term movements that go along with being in the stock market. If you do, you'll reap the rewards of long-term investing.
Visa (V -0.23%) is a great stock that's delivered high gains for long-term investors. If you had invested $10,000 in Visa stock 15 years ago, you'd have a whole lot more right now. Let's go through why it's been such a great investment and whether Visa can pull it off again.
The unbeatable, low-cost model
Visa has been an outstanding stock to own because it operates an industry-leading business with industry-topping profit margins. It's best known as a credit card network, and it makes money every time a user swipes a card, with nearly no incremental costs for each swipe.
It powers 4.2 billion cards, versus Mastercard's 3.2 billion and American Express' 138 million. It has built up relationships with many banks, other financial institutions, and its base of millions of merchants that accept its cards.
Its performance typically mirrors the general state of the economy: The more people spend, the more money Visa makes. So far, consumer spending continues to be robust despite inflation, and Visa has been playing its important role in facilitating that. In the 2023 fiscal third quarter, revenue increased 12% over last year to $8.1 billion, and earnings per share (EPS) rose 9% to $2.16.
Management said that a return to travel was a tailwind, and cross-border commerce was a major driver, increasing 17% year over year. If the economy slows, spending will be affected at some point, and Visa is likely to feel it. But that would be a short-term headwind.
Innovating into the future
However, there are many reasons to believe Visa can continue to grow, get better, and reward investors, even if it feels some economic pressure in the short term.
One is its incredible profit margin, which was nearly 52% in the third quarter. That means it's turning more than half of the revenue it makes into profit. Financial companies have higher profit margins in general than consumer goods or other tangibles companies, but Visa's can't be beat. That's partially due to its scale as the largest credit card network in the world, and the network effects that keep merchants and customers piling in.
But it's also a well-run company with its eye constantly on where it can improve and how to expand its business. It's seeing some of its highest growth in what it calls new flows, which include alternative payment options like Visa Direct. One example is its partnership with Block's Cash App, which offers various payment options for users.
Another growth driver is value-added services, such as analytics and artificial intelligence services. There's a lot to explore in this segment as more companies seek to benefit from Visa's vast pool of data and experience. Both new flows and value-added services increased almost 20% over last year in the third quarter.
If you'd invested in Visa 15 years ago, you'd be a lot richer
If you had invested $10,000 in Visa stock in 2008, you'd be sitting on nearly $200,000 today, reinvested dividends included. That's more than triple the amount you'd have gotten investing in the S&P 500.
Data source: YCharts
At this point, there won't be any company that can take over Visa's position in the short term, and it's taking steps to widen its moat and ensure dominance well into the future. There's no guarantee that the next 15 years will look the same, but there are plenty of reasons to be confident about the future.
