On Sep 4, shares of Mastercard Inc. MA hit a 52-week high of $286.21. Over the past year, the stock has gained 35.5% compared with its industry’s growth of 23%.
The upside can be attributed to investors’ confidence about the company’s ability to gain from the continuous usage of cards to make payments, even in the current uncertain economic environment.
However, purchases made by consumers may slow down given the recently imposed tariffs on China-made products. But the convenience of using cards will keep demand for the company’s services intact.
Mastercard has built a strong ecosystem with a wide payment processing network across the world along with sturdy brand value and consistent investment in technology to stay ahead of the changing markets.
Mastercard’s fixed cost of establishing processing networks has helped to reap operating leverage, which has aided its margins.
The company has complemented its core growth with numerous small and big acquisitions. These buyouts have been accretive to its revenues and have allowed it to grow faster in scale and size to compete with other players in the industry.
Mastercard has been able to maintain its superior operating performance over the years with revenue CAGR of 13% from 2013-2018, which was up further 15% in the first half of 2019. The top-line growth was fueled by an increase in switched transactions (the number of times a Mastercard account is used to facilitate a purchase), gross dollar volume and the total dollar amount of all transactions across Mastercard's network.
The company’s Service business provides solid revenue diversification, beyond its core payment processing business. This business offers services like fraud detection, reward program management, consulting, and data analytics to merchants and financial institutions.
Other players in the same space such as Visa, Inc. V, American Express Co. AXP, and Discover Financial Services DFS have rallied 36%, 28%, 35%, respectively.
Recent acquisitions made by the company also reinforce investors’ confidence. The buyout of Transactis, a bill payment platform will streamline bill presentment and payments. It also acquired Transfast, which allows Mastercard to disperse payments across bank accounts, mobile wallets and cards, all through a single API.
The company is currently trading at a forward 12-month price-to-earnings ratio of 33.5 compared with the industry’s P/E of 27.26. It commands a premium valuation because of its solid performance and a promising business model. For the current year, Mastercard expects earnings to grow by 17.3% compared with the industry’s growth of 9.4%.
Mastercard carries a Zacks Rank #3 (Hold) and the stock holds possibilities to improve further.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Mastercard Incorporated (MA) : Free Stock Analysis Report
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