Mastercard Stock: Competitive Advantage Still Underappreciated

Mastercard Stock

Mastercard Stock (NYSE:MA)

Traditional and well-established businesses are frequently disregarded. While start-ups and newly created organizations are frequently perceived as having tremendous capacity for growth, older and more mature companies are typically not regarded as growth stocks.

Mastercard (NYSE:MA) is a well-known firm that has routinely grown earnings in the double digits for some time. This renowned financial corporation offers transaction processing as well as payment-related products and services in the United States and around the world.

Since the company’s initial public offering in May 2006, Mastercard has been one of the best-performing companies in the market.

Mastercard stock has increased 7,754% since 2006, while the S&P 500 is up 833.10%.

Nonetheless, the company has underperformed the S&P 500 during the last three years.

Since 2020, Mastercard has increased by 22.48%, while the S&P 500 has increased by 40.42%.

Thesis on Investment

MasterCard is currently a good investment. This company should be able to sustain double-digit growth, management has a lot of leeway due to the company’s solid balance sheet, and the fundamental business model still has a number of distinct competitive advantages. Several criteria indicate that the stock is also undervalued.

Recent Happenings

The first-quarter earnings report from Mastercard revealed strong strength across all main segments. Management reported first-quarter earnings of $2.80 per share, compared to $2.71 per share expected. This was also an improvement from previous year’s first-quarter earnings of $2.76 per share. Revenues were $5.75 billion, compared to projections of $5.64 billion, according to the business. This was an increase over the first quarter of last year’s net revenues of $5.17 billion. Cross-border volumes surged 35% year on year, while switched transactions increased 12%. The company expects double-digit net sales growth this year, with management also predicting a low-double-digit increase in operating expenses.


Mastercard also has several distinct competitive advantages. The business is a multi-rail network that handles domestic, cross-border, card-based, and account-to-account transactions. Visa (NYSE:V) and Mastercard (NYSE:MA) dominated the US payment processing business, giving them substantial pricing power. These two businesses control over 87% of all debit, prepaid, and credit card payments processed in the United States. Because Mastercard and Visa have such a firm hold on the payment processing market in the United States, new companies have difficulty entering and undercutting these corporations’ pricing strengths. MasterCard and Visa have no motivation to engage in price wars, and these companies should maintain their outstanding market dominance.

Visa controls almost 61% of the US debit and credit card market, while Mastercard controls 26% of the market. The pricing power these firms have as a result of their dominating position in this industry is the primary reason why Mastercard’s current net margin is an astounding 42.33%, which is close to the company’s 10-year high. An S&P 500 company’s average net margin is 11.2%.

Over the last five years, Mastercard has outperformed Visa, with the corporation performing stronger, particularly outside. Mastercard has been cultivating partnerships and expanding the company’s network in this region for some time, while Visa only acquired back and seized control of Visa Europe in 2015. Until they acquired back the brand, Visa had little influence in Europe, but Mastercard has continued to make acquisitions and develop relationships in this region for decades. Mastercard’s stock has likewise increased 91% in the last five years, while Visa’s stock has increased 69% in the same time period. In the Asia-Pacific, Middle East, and Africa area, Mastercard just reported 15% transaction growth for the full year in 2022. Payment transactions increased by 11.82% across Europe, according to the business. Mastercard’s foreign expansion has been particularly significant; nearly 65% of the company’s payments are processed outside of the United States.

In terms of acquisitions, Mastercard has been more aggressive than Visa. The company has completed six acquisitions, three of which have occurred in the recent five years. Mastercard has been constructing networks and relationships in other countries for far longer than Visa. Mastercard’s more aggressive acquisition and new investment strategy have also given the corporation an advantage against Visa. Over the last five years, Mastercard’s management team has done a better job than Visa’s in terms of expanding the company’s market share through acquisitions and investments. Visa has only lately become more active in this region, having taken control of its brand throughout Europe in 2015.

Visa controls 61% of the credit card and debit card industries in the United States, although Mastercard has been more competitive with Visa in overseas countries such as Europe. Mastercard’s extensive four-rail network also provides the corporation with distinct competitive advantages over most local competitors in emerging economies such as Latin America, Central and Eastern Europe, and Southeast Asia.


This is also why Mastercard, in my opinion, is undervalued. The company’s balance sheet is currently very robust, with an operational cash flow of $11.33 billion and a levered free cash flow of $10.8 billion. Mastercard has only $15.57 billion in debt that it could easily buy back, so management has a lot of leeway in maximizing shareholder returns. The corporation now has a $9 billion dollar share repurchase program, which was launched at the end of last year. Because of Mastercard’s solid financial sheet and previous share buybacks, the corporation should continue to shrink the share float by 1-2% every year.

A company with a double-digit growth rate in a noncompetitive market that can buy back a considerable portion of its float without incurring debt should trade at more than 30 times the expected forecast earnings. Mastercard’s business model is notably less cyclical than that of many other financial organizations, as consumer spending has remained relatively consistent even during periods of recent economic hardship. The current forward earnings multiple of 30.49x appears to be low. Analysts expect the company will grow at a rate of 12-15% over the next five years, with earnings nearly doubling by 2028. Mastercard stock is also selling at a discount to the company’s average 5-year valuation of 37.74x projected forward profits, and the company’s dominating market position, in my opinion, indicates there is no danger to current analyst projections.


All investments involve risks, and Mastercard may face stricter laws and scrutiny in the United States due to the company’s and Visa’s dominating positions in this market. Mastercard’s strongest growth potential in the future is also overseas, where the business will compete with local enterprises that know the areas in which they operate intimately. Payment volumes obviously decrease during periods of economic downturn, so if there is a recession, which appears increasingly inevitable, Mastercard’s business may suffer in the short term.


Since the company went public over two decades ago, Mastercard has been one of the best-performing companies in the market. Despite the fact that the company’s growth rate has predictably slowed, Mastercard is expected to continue to grow earnings at a double-digit rate, and the company’s strong balance sheet should allow management to continue to aggressively buyback shares while also pursuing new acquisitions. While Mastercard is one of the more well-known firms in the world, it is also well-positioned to be a strong growth stock in the next few years.

Featured Image: Pexels @ Pixabay

Please See Disclaimer

About the author: Stephanie Bedard-Chateauneuf has over four years of experience writing financial content for various websites. Over the years, Stephanie has covered various industries, with a primary focus on consumer stocks, cannabis stocks, tech stocks, and personal finance. This stock lover likes to invest for the long-term. Stephanie has an MBA in finance.