After big booms come even bigger busts. Welcome to the crash of 2008.

One of the only certainties today is that, in the years to come, we'll look back at today's prices and realize that several fantastic companies were thrown out with the bad ones. In other words, there are some screaming bargains being created as we speak.

That said, let's take a look at an incredible company with tremendous potential that's been battered nearly 50% since May: Visa (NYSE:V).

Visa's is a truly unique story. Its main competitor, MasterCard (NYSE:MA) is but a fraction of its size. Other competitors like American Express (NYSE:AXP), Capital One (NYSE:COF), and Discover Financial (NYSE:DFS) take on credit risk, so right now, they're swimming against the worst credit crisis storm this generation has ever seen.

And just how cheap has it become?
At $50 per share, and with analysts expecting $2.71 per share in earnings for 2009, Visa's 18 times forward earnings looks about as attractive as it's been since going public earlier this year.

Yet, we all know one thing has accompanied the recent slide in Visa's stock price: the all too apparent risk of a nasty recession -- if not depression -- looming over global economies. The big question is whether Visa's decline is justified, or if it's one of the babies being thrown out with the bath water.

It's all about the growth
Of course, 18 times earnings certainly doesn't constitute cheapness by any means; Visa's valuation -- even at today's prices -- is hinged on the assumption of stellar future growth. Analysts predict an incredible 22% annual growth over the next five years. No doubt about it, Visa will grow, but what we've learned lately is that whatever assumptions were made about the health of consumers before about two months ago will have to be overhauled, if not completely thrown out the window.

What's that mean for Visa's earnings in the years to come? The short, easy, and honest answer is: I have no idea. No one really does. You can imagine the job of the poor analyst trying to predict the future just one year ago. Having what would turn out to be accurate foresight back then would have won you a trip to the insane asylum. The best we can hope to do is look at multiple outcomes and judge the results based on today's share price.

Admit it: It's gonna get ugly
Nouriel Roubini, one of the only economists who's been spot-on lately, predicts that the U.S. is facing a wicked recession lasting as long as two years. He also predicts that credit losses could reach $3 trillion, meaning credit retractions from the likes of Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM) -- companies Visa relies on -- might be just warming up. We'll assume he's right, and that not just the U.S., but global economies go into some form of a protracted slump.

What would Visa look like under scaled-back growth assumptions?

Pardon my crudeness, but here's what future earnings would look like under a few different growth scenarios:

Growth Rate

2009 EPS

2010 EPS

2011 EPS

2012 EPS

2013 EPS

2013 Price w/ PE of 15

5-Year Annualized Return


$ 2.72































You can poke as many holes in these assumptions as you wish, but the general trend of this chart should speak for itself. If growth assumptions of 22% hold true, shareholders will be rewarded handsomely in the coming years. But if you're under the impression that the health of consumers is all but certain to take a turn for the worse, as I am, Visa's returns are likely to be very meager at best.

That's not to say you should throw Visa away: It's still a fantastic company. Fourth-quarter earnings are due out next week, and it'll certainly be interesting to see how well global growth is holding up. I hope I'm wrong, but I find myself leaning toward a surprise on the downside. At any rate, you'd be wise to keep an eye on how growth progresses in the coming quarters and adjust your expectations to something similar to the above table.

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Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. JPMorgan Chase and Bank of America are Motley Fool Income Investor recommendations. Discover Financial and American Express are Motley Fool Inside Value picks. The Fool owns shares of American Express and has a disclosure policy.