The selloff in the market has had a significant impact on Visa stock (NYSE:V), but the company’s profits imply that it has been hit too severely. Visa satisfies the requirements of investors who want quality at a price that is affordable.
The downturn in the stock market in 2022 has been almost completely random, causing damage to the shares of enterprises of all quality levels. Visa (NYSE:V) appears to be one of the former, a decent stock that has fallen 20% from its record high in July 2021. This is in contrast to the 13% decrease that the S&P 500SPX –0.07% index saw during the same time period. At their recent price of $203, shares are again near the levels they attained in January 2020, before the supercharged surge in digital payments propelled shares during the Covid-19 outbreak.
However, the payment-processing giant has not seen a significant amount of change. Visa (NYSE:V) has a large amount of free cash flow, carries no net debt, and is expected to have double-digit growth in both sales and earnings for the foreseeable future. Its profits and projection for fiscal 2023 were disclosed after the close of trading on Tuesday, and both confirm that those factors will continue to be present. Despite this, Visa appears to be more affordable than it has in years. This is a chance that doesn’t present itself very frequently at all.
“There just aren’t that many companies that can expand with the kind of consistency [that Visa can],” says Ted Bridges, CEO of Bridges Trust, which ranks Visa among its top 10 holdings. “There just aren’t that many companies that can grow with the kind of consistency [that Visa can].” Because they are so ingrained in the industry, the risk associated with their valuation has been significantly mitigated.
The Visa stock has been crushed by worries in 2022, although some of them appear to be exaggerated. The Visa stock (NYSE:V) price has taken a hit due to investors’ worries about a future economic downturn; nevertheless, Visa’s track record demonstrates that the company continued to expand even throughout the global financial crisis that occurred in 2008 and 2009. According to Ellis’s estimates, the potential impact should be manageable, falling somewhere in the range of 2% of revenue, and the legislation that would impose these so-called dual routing requirements for credit cards is currently pending in the Senate; however, the likelihood that it will be passed there is low, and the likelihood that it will be enacted into law is even lower.
The use of plastic cards is on the rise, which should result in continued robust development over the long term. In the year 2021, almost 45% of all consumer purchases were made via card networks, which is an increase from 41% in the year 2020 and 27% in the year 2011. If penetration rates in regions like as Latin America, the Middle East, and Africa, all of which are currently lower than 35%, continue to rise, then that number could increase even more. Overall, MoffettNathanson’s Ellis anticipates approximately five points of increase from a rising global economy and five points of growth from the cash-to-card conversions. This is a significant headwind for Visa as well as its competitors in the industry as a whole.
Visa (Visa Stock) vs Mastercard
Visa, on the other hand, provides a rebate. In comparison to Mastercard MA –0.80%’s (MA) 26 times and Visa’s average of 30 times over the course of the previous five years, the company is currently trading at approximately 24 times the expected earnings for the future year, following its fall over the course of the previous year. In comparison to its historical average of a more than 60% premium, Visa’s current valuation multiple represents around 45% of an increase above the S&P 500. The share price is around 23 times the company’s expected free cash flow for the next 12 months, which results in a free-cash-flow yield of 4.4%.
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