Mastercard: Buy, Sell or Hold?

MasterCard (NYSE:MA) It has been a standout stock for investors since its listing in 2006, and has achieved market-beating returns. In fact, if you had invested $10,000 in the company back then, you would have over $11 million today.

Mastercard has a distinct advantage that allows it to achieve outstanding long-term performance. Our role as one of the largest payment networks allows us to capture more market share in emerging economies while adapting to new technologies.

If you’re planning to buy the stock, here’s what you need to know.

Mastercard’s competitive advantage

Mastercard facilitates payments globally through debit cards, credit cards and other payment methods. By 2023, purchases and cash volume will surpass $9 trillion, making it the second-largest payments network in the United States. Visa.

What makes Mastercard attractive is the strong network effect surrounding the business, which has taken years to build. It plays a key role in coordinating the movement of funds from banks to customers and merchants around the world.

Payment processing is not an easy industry to break into. Companies like Mastercard and Visa benefit from brand recognition and a network that people trust. And these companies are investing heavily in technology infrastructure to address issues such as regulatory requirements, security, and fraud prevention.

One way that Mastercard’s competitive advantage becomes apparent is by looking at its margins. Over the past decade, the company’s profit margins have been very healthy, averaging 41%. Those margins mean plenty of free cash flow, and it generated over $10.9 billion in revenue last year. This is cash that a company can use to invest in its business, repurchase shares, and pay investors through dividends.

MA Profit Margin Data from YCharts.

Here’s why Mastercard can overcome the spending slowdown.

Last year, spending remained at a very good level. Cross-border transactions increased significantly, up 24% year-on-year. Compared to the previous year, total transaction volume increased by 12% and revenue and net profit increased by 13%.

Mastercard will continue to perform well in 2024, although spending is likely to slow. Many economists predicted an economic slowdown last year, but it did not materialize. But rising interest rates could weigh on consumer spending.

“Sustaining recent growth rates will become increasingly difficult for consumers,” said Jack Kleinhenz, chief economist at the National Retail Federation. But despite the potential slowdown, analysts expect Mastercard’s revenue and earnings per share to grow 12% and 17.5%, respectively, in 2024.

Another thing bank investors should pay attention to is credit quality. However, one advantage Mastercard has over companies like: american express and Explore financial services The idea is that we don’t hold any loans on our books from credit cards or any other sources. Instead, it focuses on facilitating payments, with banks and other partners responsible for repaying debt. So while your spending may take a hit, you’re not vulnerable to credit losses.

Image source: Getty Images.

Is it a purchase?

Mastercard is well positioned for continued growth in digital payments, growing e-commerce trends, and expansion across emerging markets. According to Statista, the global digital payments market is expected to reach $16.6 trillion by 2028, growing at a CAGR of 9.5%.

And the company continues to innovate. One of the current efforts is using artificial intelligence (AI) to scan and evaluate trillions of data points to predict whether a transaction is real. According to the company, AI improvements improve fraud detection by an average of 20%, allowing banks to better protect cardholders.

Mastercard stock is up 25% since November, but still trades at a reasonable valuation compared to recent history. The stock is currently priced at 39.8 times earnings, slightly higher than its 10-year average of 37.5 times. Given the company’s strong position in the payments space and runway for future growth, we assign a Buy rating today.

Should you invest $1,000 in Mastercard right now?

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American Express is an advertising partner of The Ascent, a Motley Fool company. Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Courtney Carlsen has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard and Visa. The Motley Fool recommends Discover Financial Services and recommends the following options: Buy Mastercard’s January 2025 $370 call and sell Mastercard’s January 2025 $380 call. The Motley Fool has a disclosure policy.