Visa Stock: Buy, Sell, or Hold? Despite a tough year for many, Visa’s stock still holds promise. Here’s why it could still be a strong investment opportunity.
Let’s dive into the details…
Key Facts
- This year’s consumer spending slowdown resulted in a stagnation of Visa’s stock price.
- The stock is also being negatively impacted by unresolved antitrust issues.
- Although the share price of Visa is currently hovering around zero, it will eventually rise once more.
Payment Card Services: A Timeless Investment
Visa‘s (V 0.22%) While the S&P 500 gained 14% this year, stocks remained almost unchanged. The payment card services provider lost its appeal due to macro-headwind factors that affected consumer spending, recessionary fears, and antitrust issues.
Should investors buy and hold Visa’s stock during a market sell-off?
Should they wait for the macro and regulatory headwinds to pass before selling or avoiding it?
Understanding Visa’s Business Strategy
Although Visa doesn’t offer cards for credit, it is often considered a credit card company. Instead, it only offers credit cards under the Visa brand in partnership with banks and other financial institutions. These organizations take on all credit risk and are in charge of collecting any unpaid debt. They also connect their own checking accounts to Visa-branded debit cards.
Visa is mainly responsible for directing those payments via its extensive global payment network. Every time a transaction is made, Visa levies a “swipe fee” (typically ranging from 1.5% to 3.5%) to the merchant. The fee is then divided with the card issuer, with Visa keeping the remaining amount as revenue. Mastercard (MA 0.04%), Visa’s primary rival, operates under a similar business strategy.
How Fast Is Visa Growing?
Visa and Mastercard account for over 90% of the payment processing market share outside of China. They’re both good long-term investments because they dominate the payment industry, which is moving away from cash. They have broad moats due to their size and well-known brand, and the payments they handle don’t expose them to any credit risk.
Since most users still associate mobile payment apps with their current credit cards, Visa and Mastercard don’t really have to contend with much competition from these apps. Additionally, since they would probably lose a lot of business if they were cut off from the two largest card-processing networks in the world, merchants have little leverage to negotiate lower swipe fees.
Visa’s earnings per share grew by 16% each year from 2013 to 2023, and its revenue grew by 11% each year.
Visa’s earnings per share (EPS) by 16% each year from 2013 to 2023, and its revenue grew by a CAGR of 11% each year, which concluded last September. In contrast to the S&P 500, which has grown by less than 180% over the last ten years, its stock has increased by more than 390%. Over a fifth of its shares were also bought back by it during those ten years.
Navigating Macro and Regulatory Challenges
Although Visa appears to be a stable stock, it is still facing regulatory and macro challenges. Macroeconomic factors such as inflation and high interest rates can limit consumer spending and lower swipe fees, which would hinder the company’s growth.
Regarding regulations, since 2005, Visa and Mastercard have been subject to ongoing antitrust pressure to reduce their swipe fees. The two businesses and many merchant groups came to an early settlement in March whereby the companies agreed to lower their average swipe fees by at least four basis points over the following three years. They also agreed to cap their fees at least seven basis points below the current average for the next five years. But in late June, a U.S. judge rejected the settlement’s final approval. Due to this setback, Visa and Mastercard may be forced to offer even lower settlement fees.
Visa faces macroeconomic challenges and regulatory pressures. Learn about how these factors affect Visa and other financial entities in Questions to Ask Debt Consolidation Company.
Is It a Good Time to Visa Stock: Buy, Sell, or Hold?
Even with these challenges, analysts expect Visa’s revenue to grow by 10% and its earnings per share (EPS) by 17% in 2024. They forecast that its revenue will increase at a CAGR of 10% and 14%, respectively, between the fiscal years 2023 and 2026. Although those estimates should be regarded with caution, they do indicate that the stock is still fairly valued at 23 times projected earnings, which is not cheap. At 32 times forward earnings, Mastercard, which confronts many of the same short-term difficulties, appears somewhat more expensive.
I don’t see any reasons to sell or avoid Visa at this time as a long-term investor. It has a wide moat, and strong pricing power, and its core business is still expanding. Nevertheless, given the stock’s low valuation and the prospect of a recession and antitrust action, I’m not sure now is the ideal moment to purchase it. For this reason, I would suggest holding onto your Visa stock for the time being if you currently own any. In this volatile market, its upside potential may be limited, but if it pulls back even further, I’d buy more shares.
Seize This Second Chance for a Lucrative Opportunity
Have you ever thought that you ought to have invested in more of the top-performing stocks? That’s why you ought to hear this.
Now and then, our experienced team of analysts suggests stocks “Double Down” on businesses they think have a bright future. Now is the ideal time to purchase before it’s too late if you’re concerned that you’ve already lost out on the opportunity to invest. Here’s the straightforward truth:
- Amazon: Investing $1,000 in our 2010 double-down would have yielded $19,941!
- Apple: Investing $1,000 in our 2008 double dip would have given you $42,763!
- Netflix: Investing $1,000 in our 2004 double down would have netted $363,520!
Explore additional investment opportunities and strategies with our expert analysis. For more insights into promising investments, visit Best Fintech Startups in New York.
