Investors looking for potential new stocks to buy will often take a look at previous winners to see if they will continue to outperform in the future. After all, winning stocks have a tendency to remain winning stocks. That's why Mastercard (MA +0.41%), whose shares have surged 505% in the last decade, might be catching your attention.
But where will this top financial stock be 10 years from now? Here's what you should be thinking about to potentially answer that question.
A history of success
Mastercard's stock performed so well in the past largely because its business regularly posted strong fundamental results. Between 2013 and 2023, revenue rose at a compound annual rate of 11.7%. The gains were incredibly steady, with 2020 being the only down year. The pandemic deserves the blame for that particular drop, as it brought the economy to a screeching halt, pressuring spending behavior.
The company's bottom line has fared even better. Net income climbed at an annualized pace of 13.6% in the last decade. And thanks to ongoing share buybacks, earnings per share increased at an even faster clip.
Of course, it helps that cashless transactions have become a more popular method of payment across the globe over the past decade. There's still lots of runway here, given that many countries, particularly in Asia and Latin America, are way behind the U.S. when it comes to the evolution of payment systems.
NYSE: MA
Key Data Points
The future looks bright
Besides the secular growth of cashless payments, investors have other reasons to believe that Mastercard's past success will continue over the next decade and beyond.
For starters, the business is protected from the threat of disruption thanks to its powerful network effects. With 2.9 billion cards in circulation that are accepted at more than 100 million merchant locations worldwide, the company has created a massive two-sided platform. It would be almost impossible for someone to start a competing payments network from scratch. In addition to having ubiquitous acceptance, Mastercard makes paying for things with cards convenient and safe.
Some critics might point to the emergence of various fintech players, particularly in the payments realm. There's PayPal, Block, Apple, Adyen, and privately held Stripe, for example, that might worry shareholders. However, consider Mastercard's impressive growth trajectory over the past five to 10 years. The business has continued to expand at a healthy clip while all these industry changes were going on.
The rise of fintech offerings actually spurs the transition away from cash and paper-based forms of payments. And this should continue to benefit Mastercard.
I also think additional services, like cyber, intelligence, and data solutions, will become a more important revenue driver for the company over time. Consumers, enterprises, financial institutions, and governments will need to adjust their operations to be able to handle a world that is becoming more and more digitized. Mastercard can serve these needs, making it a more important mission-critical provider to the smooth functioning of the economy.
Valuation matters
Thanks to Mastercard's monster share gains in the past, things don't look cheap at the moment. The stock trades at a price-to-earnings ratio of 39.7 right now, which is a premium to its trailing 10-year average. In fact, this is the most expensive that shares have been in the last 22 months. The market knows Mastercard is a wonderful business.
Even factoring in the current valuation, I believe there's a really good chance that the stock will continue to outperform the broader market over the long term. A strong competitive position, coupled with growth tailwinds, will lead to happy shareholders.
