Visa, one of the world’s leading financial giants, has emerged as a shining star in the investment world over the past decade.
If you had invested $10,000 in Visa’s stock back in 2013, your investment would be worth more than $51,000 today, marking an impressive gain of 411%. This extraordinary performance has left both the S&P 500 and Nasdaq Composite index trailing far behind.
Strong Fundamentals
Visa’s remarkable success can be attributed to its robust fundamentals. Over the past decade, the company has displayed a track record of consistent growth. Key metrics like revenue and diluted earnings per share have witnessed substantial annual increases of 11% and 24%, respectively, between fiscal years 2012 and 2022.
In the most recent quarter, Visa boasted an impressive operating margin of 62%. Moreover, the company generates substantial free cash flow, enabling it to reward shareholders by reducing the outstanding share count by 19% in the past ten years.
Even during uncertain economic times, Visa demonstrated its resilience with double-digit revenue growth in the past nine quarters. Looking ahead, Wall Street expects Visa’s sales to continue rising at an annualized rate of 11% over the next five fiscal years.
Impenetrable Moat
A key factor contributing to Visa’s remarkable success is the presence of network effects, creating an economic moat that is virtually impenetrable. Visa operates at the heart of a two-sided payments network, connecting a staggering 100 million merchant locations with 4.2 billion cards in circulation. The growth of either of these groups immediately enhances the network’s value to both existing and new stakeholders.
This scalable business model has resulted in Visa’s exceptional financial performance. Furthermore, Visa’s position in the market is bolstered by popular digital payment platforms like PayPal and Block, which rely on Visa’s network. These newer companies are actually benefiting the card networks by accelerating the transition to cashless transactions.
Should Investors Buy the Stock?
Investors may be tempted to jump into Visa shares given its wide economic moat and outstanding financial success. The company remains poised to benefit from the ongoing shift from cash transactions to digital payments worldwide.
To own a company with such compelling qualitative characteristics, investors are being asked to pay a trailing price-to-earnings (P/E) ratio of 30.6. While this falls below the trailing-10-year average P/E multiple of 33.6, it doesn’t necessarily scream “bargain.” However, considering Visa’s strong competitive position and the potential for continued growth in digital payments, it’s worth taking a closer look at this stock.
Visa’s remarkable journey from a $10,000 investment in 2013 to over $51,000 today is a testament to the strength of its business model and its ability to adapt and thrive in an evolving financial landscape. As the world moves further away from cash, Visa’s position as a dominant player in the digital payments space continues to shine, making it an appealing prospect for investors looking for long-term growth potential.
