Payment processing network Visa (V 0.15%) continues to slide further from its 52-week high; shares are roughly 12% off their peak. Why? Wall Street could be worried about a potential recession slowing spending and hurting Visa's business. The company recently reported Q3 earnings for its fiscal 2024, and results were solid but not good enough to reverse the selling pressure.
So is Visa in as much trouble as the stock's recent selling might indicate? Or is this a buying opportunity for a stock that rarely goes on sale? Here is what you need to know.
Growth is slowing but only slightly
Visa is the world's largest payment network. It makes money by charging fees on transactions using Visa-branded debit and credit cards and digital payment methods. You could think of Visa as a tollbooth operator for the global economy. Visa has grown significantly with the global economy, and the general shift away from cash payments has been a multidecade growth story that's fueled remarkable investment returns.
However, recent earnings results show that growth is slowing somewhat. The company's $2.42 in non-GAAP earnings per share met analyst estimates, but its $8.9 billion in revenue was a slight miss ($20 million). Additionally, payment volume growth slowed across the board from a quarter ago:
Source: Visa
On the earnings call, management described its key business drivers as relatively stable. And while its preview of Q4 (management commented on the business as of July 21) indicated a continued slight slowdown from Q3 growth, there wasn't much cause for concern. Management ascribed the slowdown to random factors, including the recent IT outage. Visa also reiterated its full-year guidance for low-double-digit revenue growth and low-teens earnings growth.
The market might be concerned about Visa, but the earnings results seem pretty much to be business as usual. Management didn't indicate they were worried about a dramatic slowdown that might hurt the company.
Long-term opportunities remain intact
Companies ebb and flow over time. Investors should be more concerned with Visa's long-term direction than whether growth fluctuates by a couple of points here or there. The good news is that Visa still has fantastic long-term growth opportunities.
According to research by PwC, global cashless payment volumes are projected to grow by more than 60% from 2025 to 2030. Visa's global presence means it should benefit as cash-dependent emerging markets adopt debit and credit payments over the coming years.
NYSE: V
Key Data Points
In developed countries, new payment approaches like "buy now, pay later," cryptocurrency, and digital wallets could eventually take traditional debit and credit market share. Visa is smartly embracing them.
The company launched Visa Flexible Credential this year, allowing consumers to toggle between payment methods. In other words, instead of having a debit card, a credit card, and a cryptocurrency wallet, consumers have one credential that can alternate between them. The company recently partnered with Marqeta and Affirm to use this technology. It hitches Visa to these fast-growing wagons.
Visa also has a cryptocurrency innovation hub and is rolling out digital wallet products for consumers and businesses. Too many dominant companies in history have stood by and waited for innovative threats to grow and ultimately replace them. It's great that Visa doesn't seem to be making that mistake.
Is Visa stock a buy?
Analysts' long-term growth expectations are currently their lowest since the pandemic. It's probably no coincidence that shares have followed growth estimates lower. But is the selling overdone? Shares now trade at a forward P/E of less than 26 versus the stock's average of 34 over the past decade. That's nearly 25% below its long-term norms.
V EPS LT Growth Estimates data by YCharts
Visa's growth has slowed somewhat, so it's probably fair that the stock's valuation has decreased, too. That said, this looks like a great long-term buying opportunity. Visa dominates a multitrillion-dollar industry, is highly profitable, and could grow earnings by 13% annually over the long term. The stock should beat the broader market by simply following its growth rate.
What if growth picks back up? Great! The stock's valuation would probably revert to its long-term average, and investors will be thrilled. The bottom line? Investors can confidently buy and hold Visa stock today.
