Mastercard (MA 0.43%) had its initial public offering in May 2006. Since then, this has been a wildly successful investment: Shares of the payment processing titan have skyrocketed 9,590% (as of July 19). There's no doubt that the business has created many millionaires along the way.
But as we look ahead, investors are certainly thinking about the financial stock's prospects. Can Mastercard still make you a millionaire one day?
Mastercard is a remarkable business
Mastercard benefits from a long-term secular trend, which is the widespread transition away from cash and paper-based methods of payment to cashless forms. As one of the world's leading card networks, Mastercard directly gains from this.
In 2013, the business generated $8.3 billion in revenue and processed $4.1 trillion in total payment volume (TPV). Fast-forward to 2023, and Mastercard reported sales of $25.1 billion while handling a jaw-dropping $9 trillion of TPV. That expansion is remarkable.
Another reason that Mastercard is a great business comes down to profitability. Whereas many growth-oriented tech-focused enterprises are known to forego positive earnings now in the hopes that it can be achieved in the future, Mastercard has long been profitable.
That's because it has a very scalable and lucrative business model. The company operates the communications infrastructure that allows consumers, merchants, and financial institutions to interact with one another, collecting fees in the process. Each marginal transaction carries very little costs. This helps explain the ridiculous 57% operating margin the company notched in Q1 2024.
What makes Mastercard truly special is the presence of network effects, which is what make up its economic moat. There are currently 1.9 billion cards in circulation across the globe, with more than 100 million merchant locations that accept them. This broad penetration and acceptance makes it virtually impossible for Mastercard to be disrupted anytime soon.
Critics might point to the rise of fintech enterprises, most notably PayPal, Adyen, and Block, as threats to Mastercard. But it's worth mentioning that even with these new businesses finding success, Mastercard has continued to increase its revenue and earnings at strong rates. Those fintech companies actually further the adoption of digital payments, which benefits Mastercard.
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On the road to a million
Now that we've established that Mastercard is in fact a superb company, the next topic centers on the possibility that this stock can make its investors millionaires. To be clear, with a market cap of $415 billion, it's best not to expect historical returns to repeat themselves going forward. This is a more mature business than it was a decade ago.
The valuation must also be considered. Its shares trade at a price-to-earnings ratio of 35.4. While this represents a slight discount to the trailing-10-year average, it still doesn't scream "bargain opportunity."
At the end of the day, though, I view Mastercard as a worthy portfolio addition. Most market observers would agree that this is truly one of the world's elite businesses. And that certainly warrants buying consideration. Investors who are able to put more initial capital to work up front, while also deploying a dollar-cost averaging approach, have a better shot at becoming millionaires off of this stock.
It also helps if you extend your time horizon. If you expect to become a millionaire in five years by buying Mastercard shares, you'll likely be disappointed. But if you think in terms of decades, the outcome could end up being quite favorable.
