In the past decade, Visa (V 0.20%) has demonstrated remarkable growth, outpacing major indices like the S&P 500 and the Nasdaq Composite Index.
With a staggering 375% increase in share value, the company has certainly caught the attention of investors looking for promising growth stocks for their portfolios.
Strong Performance Amid Economic Headwinds
Despite the challenges posed by higher interest rates and inflationary pressures affecting many businesses, Visa has continued to thrive.
The fiscal year 2023 ended with the company reporting a substantial $32.7 billion in revenue, marking an 11% increase from the previous year.
This growth was fueled by a significant 5% increase in payment volume, totaling an impressive $14.3 trillion. A key driver of this success has been the robust cross-border transaction activity.
Consistent Bottom-Line Gains
Visa’s financial strength is further underscored by its bottom-line performance. Diluted earnings per share (EPS) saw an 18% increase in the last fiscal year, continuing a decade-long trend of compound annual growth of 15.9%.
This consistent profitability is a primary reason behind the stock’s impressive performance for investors.
Looking to the future, Visa’s executives are optimistic, anticipating a return to normalcy following disruptions caused by geopolitical events and the pandemic.
The company’s CFO, Chris Suh, projects “low double-digit adjusted net revenue growth” for the full year. This outlook is based on the assumption that Visa’s business model is resilient enough to withstand varying economic conditions, thus offering a measure of risk reduction for investors’ portfolios.
Visa’s Core Business Strengths
- Dominant Payment Network: Visa’s status as the world’s leading payment network underlines its critical role in the global economy. The hypothetical scenario of Visa’s network ceasing to function demonstrates the company’s indispensability to both consumers and businesses.
- Widespread Acceptance and Network Effects: With over 4.3 billion cards in circulation and acceptance at more than 130 million merchant locations globally, Visa’s network effect provides a significant barrier against potential disruptions.
- Warren Buffett’s Endorsement: Visa epitomizes Warren Buffett’s ideal business model – a company that earns a “royalty on the growth of others” without bearing significant capital burdens. By not extending credit directly, Visa avoids borrower approval risks, which are instead assumed by its partnering banks.
Inflation Resilience and Revenue Potential
Visa’s business model, which involves collecting fees from card transactions, positions the company to benefit from inflationary trends. As consumer spending increases, so does Visa’s potential revenue, making it a unique player in the market with strong inflation resilience.
Valuation and Investment Attractiveness
Currently, Visa trades at a price-to-earnings ratio of 31.9. This valuation is not only lower than its historical 10-year average but also offers a competitive edge over its rival, Mastercard. This valuation is seen as an attractive entry point for investors.
Future Growth Projections
Based on consensus analyst estimates, Visa is expected to continue its growth trajectory, with projections of increasing revenue and EPS at annualized rates of 10.5% and 13.4%, respectively, between fiscal 2023 and fiscal 2026.
These estimates, coupled with Visa’s robust business characteristics, suggest the likelihood of sustained double-digit growth in the coming years.
Conclusion: A Worthy Long-Term Investment
Considering Visa’s consistent historical performance, robust business model, and positive growth projections, the stock appears to be a solid choice for long-term investment portfolios.
Its resilience in varying economic conditions, combined with its dominant market position, makes Visa a compelling choice for investors seeking stable yet growth-oriented assets.
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I’m Nathan Goldstein, a writer and political analyst focused on simplifying complex social and political issues. My writing breaks down the intricacies of today’s society and politics to make them more understandable for you. I’m committed to providing clear and well-informed insights.