Investors can look at past stock market winners to find businesses that might continue their trends in the future. For example, Visa (V -0.23%) shares have soared 396% in the last decade, crushing the major indices. And there are plenty of reasons to believe this outperformance can keep going.
Is now the right time to buy this top financial stock?
Profitable growth
The economic backdrop in the past couple of years isn't what investors or corporate executives are used to. Higher interest rates and inflationary pressures draw everyone's attention. And these factors, coupled with general macro uncertainty, are hurting many businesses today.
But Visa continues marching along. In fact, it looks unfazed by external forces that you might assume would hurt the company.
The company handled $14.8 trillion of payment volume in fiscal 2023 (ended Sept. 30). That was up 5% year over year, a gain that accelerated to 7.6% in the last three months of last year. This helped drive revenue higher by 9% in Q1 2024 (ended Dec. 31).
If we zoom out, we see a story of steady growth. Visa has been able to increase revenue at a compound annual rate of over 9% in the last five fiscal years. The pandemic-laden 2020 was the anomaly, leading to declining sales that year.
Otherwise, Visa seems to be able to perform well no matter what the economy is doing. This becomes strikingly clear when you look at the company's impressive profitability. The business reported a ridiculous operating margin of 64.3% last fiscal year. Good luck finding even one enterprise that does better when it comes to that metric.
This is a scalable business model, mainly because the technological and communications network that underpins Visa's ability to process payments is already built out. This helps explain why that operating margin is so high.
As we look ahead, there is still a sizable expansionary runway for Visa to continue growing its payment volume, revenue, and earnings. The so-called "war on cash" is still going, particularly in emerging economies that don't have the sophisticated payments or financial infrastructure that developed countries do. This trend will keep propelling Visa in the years ahead.
Protected from disruption
Despite Visa's clear dominance, as demonstrated by its more-than-60% share of all card payment volume in the U.S., bearish investors can quickly point to the rise of various fintech platforms as an obvious reason to be a bit more pessimistic. PayPal and Block, for example, could drive greater levels of activity to their own platforms.
But as I mentioned above, consider that Visa has continued its growth trajectory over the past decade, especially in the face of these younger financial services providers. A valid argument can be made that popular digital wallets, which improve the user experience, actually accelerate the use of cashless transactions, spurring higher volume on Visa's network.
It's difficult to believe that Visa's competitive standing is ever going to be disrupted. There are 4.3 billion of its branded cards in circulation across the globe. And they are accepted at 130 million merchant locations. No new payments start-up could create a competing network from scratch.
The time is now
In order to add one of the world's truly elite businesses to your portfolio, you'll have to pay what at first appears like an expensive valuation. Shares trade at a forward price-to-earnings ratio of 28.2. That represents a 34% premium to the S&P 500.
But given al of the wonderful qualities that Visa possesses from both a competitive and a financial standpoint, the stock still looks like a no-brainer buy right now.
