Mastercard (MA +0.95%) launched its initial public offering almost 20 years ago. Since then, the stock has delivered exceptional returns year after year, outclassing the broader market. While past performance should not be taken as an indication of future performance, there are several reasons I expect Mastercard stock to continue doing well in the long term, and why I plan to remain invested for the long term.
Let's take a closer look at one of those reasons.
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Mastercard still has a vast market opportunity
Mastercard is a financial services specialist. The company facilitates debit and credit card transactions by operating a payment network. It charges a fee for the transactions it helps process, and as a result, Mastercard's financial results depend on transaction volume.
In the past, Mastercard relied on the growing use of these cards for transactions to fuel its growth. But credit and debit cards have been around for decades now, and the use of cash and checks to facilitate transactions has been on the decline for a long time. The movement to a cashless society has taken hold (especially in the European Union and the United States), and that might lead some investors to worry that transaction volume growth will slow.
While the cash displacement phenomenon is real, it isn't as far along as you may think. This is especially true in many countries outside the U.S. and the EU, where card penetration is lower. That's great news for Mastercard, which has significant exposure to high-growth international markets.
NYSE: MA
Key Data Points
Here's another key tailwind from which the company will profit: The expansion of the e-commerce industry. Online sales generally require digital payment methods, including credit and debit cards. This market is growing at a good clip and should maintain a rising trajectory for a long time, given the convenience and cost-saving opportunities it offers to merchants and consumers.
So, between replacing cash transactions in traditional, brick-and-mortar stores and tapping into the increased popularity of e-commerce, Mastercard has a substantial, long-term growth fuel. The company has estimated that there are still $1.1 trillion and $1.5 trillion worth of cash and check transactions globally.
Even with competition, this massive opportunity should enable Mastercard to expand its revenue and profits at a steady rate for a long time.
Mastercard is a terrific forever stock
Mastercard may have already made longtime shareholders significantly richer, but based on its growth prospects, it can still do the same for those who initiate positions today. That's especially the case once we mention other aspects of the company's business, including its strong network effect, innovations that are strengthening its core business, and an excellent dividend track record. All these factors make Mastercard a stock worth buying today and holding on to for the long term.
