Should you buy Visa stock?

Visit our Substack: https://www.overlookedalpha.com Revenue over the last 12 months was 30 billion and net income was 15 billion with just over 7 dollars earnings per share. That means the company is valued at 14 times revenue or 32 times earnings. That high PE ratio is understandable since Visa is one of the best businesses in the world. The company has grown revenues around 11% a year over the past 10 years and earnings around 20% a year. It handles 150 million transactions every day with 50% of Visa’s top line revenue heading straight to net income. Last year, 59% of transactions were made with cash, down from 72% in 2019. So Visa still has plenty of growth ahead as cash continues to be displaced. Let’s assume Visa grows earnings at 15% per year for the next 10 years (lower than the historical average) and then trades at 25 times earnings. That would give the company a market cap of 1.5 trillion. Include dividends and the investment return sits right around 15% per annum. However, it’s not all good news. A federal bill in the US called the Credit Card Competition Act is seeking to drive down credit card transaction fees and jump start competition in the space. The bill specifically targets the Visa and Mastercard duopoly, whose swipe fees have climbed above 2.2%. It gives merchants more choice over which payment networks to use and highlights the political risk against the two companies. The bill may not get through congress but if it does it would impact the roughly 80 billion dollars in transaction fees that flows to banks and payment networks like Visa. It’s a clear risk but it could also present a buying opportunity. The long term prospects for Visa should stay intact and Visa’s PE multiple is already trading at the low end of its historical range. On balance, I continue to give the stock a bullish rating. #stocks #investing #stockstobuy #stockmarket #overlookedalpha