With revenue growth of 280% over the past 10 years and 20 percent return on equity last year, let’s uncover whether or not you should be buying Visa stocks.
With the past decade seeing a 280% growth in revenue and a 20% return on equity last year, we seek to uncover whether Visa (NYSE: V) is a good stock to buy or not. Undoubtedly, Visa is an impressive company and they are the operators of the largest payment processing network in the world. Since Visa went public in 2008, it has grown at an impressive rate of about 15 percent per year. It may also be worth mentioning that it had a recession to deal with during that period as well. But, in order for any stock to be deemed a good stock to buy, the current price should be justified by the future potential. That said, here are some pros and cons of Visa to help decide whether it’s a great stock to buy or not.
Being the world’s biggest payment processing network, Visa, in 2014, processed more than an impressive $1.2 trillion worth of transactions. Visa boasts 3 primary sources of revenues from its network which include, (1) international transaction fees (25 percent), (2) data processing fees (35 percent) and (3) service fees (40 percent).
According to the most recent earnings report, the company’s revenue increased by 7 percent year-over-year resulting in an annual increase of 15% earnings per share (EPS).
With the world-wide aim of going cashless and with 85% of global transactions still being conducted with cash, there is evidently no lack of opportunity for Visa to expand. In addition to this, there are around 2.9 billion people globally who are likely to join the middle-class by 2030. This will result in more demand for payment processing coupled with more money available for spending and ultimately larger processing fees for Visa.
Given all of these facts and benefits, there is only one concern that the stock price is too high to consider investing in Visa. With low double digit growth in revenues predicted by the company in the future, shares are trading at 25.6 times the earnings expectation for 2015. Shares have risen 31.1% during the last year and some analysts find the current valuation simply unjustifiable.
There is lots to be desired with Visa as a dividend stock. Although there has been an increase in dividends of 260 percent since 2009, 0.7 percent yield annually is less likely to attract income investors. Repurchasing $803 million worth of stock in the last quarter, Visa has a strong buyback program; however, many investors have shown that they want their stocks paying dividends.
Given the above, Visa may not be the best stock to buy right now. However, it still remains one of the greatest companies in the world. If the stock price was right, this would have no-doubt been an investment worth considering. If you feel the stock price of Visa is justifiable, you know then which stocks you need to be buying.
MT4 Chart: VISA
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