During the past decade, the S&P 500 rose by 230%, including dividends. That's a respectable gain that exceeds the broad index's long-term track record of roughly 10% per year. Low interest rates for most of this time certainly helped.
One stock, Visa (V -0.23%), has crushed the S&P 500's gain by a wide margin. Shares of this top financial company have soared 393% in the past decade, thanks to a strong fundamental performance.
But where will Visa be 10 years from now?
Some things never change
Visa is a business that helps to facilitate the smooth functioning of commerce. It connects consumers and their banks with merchants and their banks by providing a communications channel that allows card transactions to be processed. According to Statista, Visa handles more than 60% of all card payment volume in the U.S., way ahead of second-place Mastercard.
Between fiscal 2013 and fiscal 2023, Visa reported annualized revenue growth of 10.7%. During this 10-year stretch, there was only one year when the business posted a sales decline. That was 2020, when the global economy was hurting from the COVID-19 pandemic. Despite this, Visa has been a steady and consistent grower. And it's extremely profitable, with an operating margin exceeding 64%.
The company's impressive historical success has been supported by the steady proliferation of cashless transactions, particularly with the rise in popularity of credit cards and other digital forms of payment. Despite the convenience and safety of using non-cash payments, even in a developed economy like the U.S., 58% of Americans still use cash for some or all of their weekly purchases. The opportunity for Visa is even larger, unsurprisingly, in emerging markets.
There's no reason to believe this secular trend away from cash is abating anytime soon. So, 10 years from now, I'm sure Visa will be generating a lot more revenue and net income.
As of Dec. 31, there were a whopping 4.3 billion Visa cards in circulation around the world. And the company processed $15 trillion in volume last fiscal year. As the world economy expands, so will the volume and number of transactions that Visa handles.
A different source of revenue
In fiscal 2023, which ended Sept. 30, less than 8% of Visa's revenue came from additional services not directly tied to the processing of transactions. Offerings vary, ranging from risk and fraud detection to advisory and consulting services.
I believe these will rise as a share of Visa's business in the years ahead. As the world becomes more and more digitized, it's critical for consumers, enterprises, and governments to find ways to stay competitive. Entering or renewing partnerships, as the business has done in Japan and Mexico, is a strategic focus.
From Visa's perspective, these services only help to bolster its competitive position because they can strengthen client relationships. And they can provide a stable and recurring revenue stream.
A winning investment
At a market cap of $565 billion today, I don't think Visa's returns over the next 10 years will resemble the past. That's because the bigger a business gets, the more difficult it becomes to maintain the same levels of growth.
Thanks to its remarkable historical performance, the stock trades at a price-to-earnings (P/E) ratio of 32.6. While that represents a large premium to the S&P 500's 22.8 multiple, it's still slightly below Visa's trailing-10-year average of 33.8.
I think this just demonstrates that the investing community is fully aware of how wonderful a business this is, so the shares will rarely look cheap from a P/E perspective. Nonetheless, I would be surprised if the stock didn't outperform the market during the next decade.
