You likely have a Visa card in your wallet. As a global leader in digital payments, Visa has 4.2 billion credit and payment cards in circulation across more than 200 countries. It plays a crucial role in international commerce, enabling the movement of money across a vast network of consumers, merchants, financial institutions, businesses, partners, and government entities. Through its advanced transaction processing network, VisaNet, the company facilitates payment authorization, clearing, and settlement, and it is one of the most remarkable and consistent growth stories around — along with fellow payment processing company Mastercard. We’ll describe an upside call spread to bet on the stock’s continued success. The following chart illustrates its remarkably consistent growth since the pandemic plunge (which naturally suspended considerable economic activity). Interestingly, in the past two years, as multiples expanded in many stocks — and the market more generally— Visa’s stock price appreciation has resulted exclusively from growth. The stock’s P/E ratio has essentially remained unchanged since mid-2022 and is well below the 5-year average, as the chart below illustrates. While a 30 P/E is higher than the market’s, the S & P trades closer to 26 times earnings; Visa should trade at a premium. Earnings growth is roughly double that of the market more broadly. V 5Y mountain Visa, 5 years The question is, why did Visa’s multiples stagnate while those for virtually everything else expanded? What risks are investors pricing in? One is probably tied to risks associated with overburdened consumers. Lots of signs have indicated that consumers, mainly middle and lower-income consumers, are struggling. Rising debt levels, rising delinquencies, and management comments about consumer behavior among more price-conscious consumers confirm what anyone who has gone shopping over the last couple years. Many consumers are stretched. The ability for consumer spending growth to continue apace is limited, so presumably, topline growth will slow somewhat. There’s another issue, though, law enforcement. The Feds have been pursuing many of the most well-known companies, and last month, the DOJ sued Visa , alleging the company illegally monopolized the consumer payments market. Visa joins an illustrious crowd of government targets — the DOJ is currently investigating Alphabet, Apple, Live Nation, Nvidia, United Health, Southwest Airlines, and Regeneron, among others….
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