Mastercard Inc (NYSE 🙂 and Visa (NYSE :), & # 39; the world's largest payment networks, have proven a great bet for their investors. Despite all the concerns about global growth, trade wars and market volatility, their stocks have continued their upward journey and beat the wider market.
Shares of both companies have increased by 30% to 45% this year, while the Index has increased by 19%. If you look at their performances over the longer horizon, the benefits are more amazing. Mastercard has achieved a return of around 260% in the last five years, while Visa has increased by 223%.
Mastercard, Visa price charts
The growth stories of Visa and Mastercard are impressive. Thanks to their dominant market position and the continuous worldwide shift of cash, both companies are ideally positioned to take advantage of the strong global economy, solid consumer spending in the US and a favorable credit environment.
For the second quarter, Mastercard was a revenue growth of 12%, while Visa was an increase of 15% compared to a year ago. Mastercard's revenue has risen by more than 17% on average over the past eight quarters, according to FactSet.
With this kind of explosive growth, a logical question in the minds of investors should be whether both payment masters will be able to continue with this growth route? That concern has become more relevant, given the increasing signs of economic weakness outside the US, in combination with the ongoing trade war with China.
Bullish future expectations
Despite these concerns, the analyst community is still quite optimistic about the future. Of the 38 Wall Street analysts who cover Mastercard, 35 recommend buying the shares. And for Visa, the number of buy calls is 34 out of 39 in total.
"There are few (or none) other stocks that you can have a similar belief that the company will make ~ 20% profit per year for at least the next five years," said Lisa Ellis, analyst of Moffett Nathanson, in a recent note to customers.
In the case of Mastercard, sentiment became bullish in recent months after the company began to invest heavily in acquisitions to unlock future growth and expand its digital capabilities.
Last month, the company agreed to purchase a payment platform from the Danish-based Nets for $ 3.19 billion. Earlier this year, the company purchased Ethoca, which helps traders identify fraud, and Vyze, a payment provider. The company also acquired Transactis, which helps with invoice payments, and Transfast, a cross-border payment network.
Visa, on the other hand, consolidates its dominant position in the payment market through a series of acquisitions and partnerships.
Visa was intrinsically ready for success, said David Ritter, a Bloomberg Intelligence analyst in a report last month. The network provided the infrastructure for electronic payments when digital trading started to spark, and the role of intermediary in transactions yields high profit margins with low costs and risks.
"The big wind is the trade that goes electronically," Ritter said in the report. "They are just in a great company and are enviable."
Bottom Line
Both Visa and Mastercard benefit from strong consumer spending, a cyclical shift from cash to credit and a persistently low interest rate environment that feeds consumer spending. This rally can continue if these circumstances arise, but both stocks do not remain immune to a sharp slowdown in the economy. Any decline in their share value should be seen by long-term investors as a chance to sell.
