Mastercard: Buy, Sell or Hold?

MasterCard (NYSE:MA) and Visa (NYSE: V) It has an effective oligopoly in the payment processing space. In some ways this is good for business and in other ways it is bad. But the good far outweighs the bad. This helps explain why Mastercard’s stock price has risen more than 500% over the past decade. Nonetheless, the decision to buy, sell, or hold Mastercard stock is not an easy one.

Would you like to purchase Mastercard?

Let’s start with the positive: Mastercard’s industry position is strong. Visa is indeed a larger company, but that doesn’t change the fact that Mastercard is a giant corporation that will be difficult for smaller competitors to replace or displace. As card-based payments grow, so does Mastercard’s business. There is no particular reason to believe that the payment processing industry’s upward trend will suddenly stop.

Image source: Getty Images.

If you’re a growth-oriented investor, this is a compelling storyline and one you might want to jump into. Additionally, Mastercard has raised its dividend every year for 12 years. Over the past 10 years, the annual dividend growth rate has been 23%. More recently there has been a boost to about half that level, but even that is still a huge expansion rate. So if you’re a growth and income or dividend growth investor, this stock may also be attractive. But wait a moment before you go out to buy…

Would you like to have a Mastercard?

Here’s where things get a little more interesting. Mastercard’s price-to-sales ratio is currently around 18.2, with the five-year average being around 18.1. The price-to-earnings ratio is 40.9, with the long-term average being 40.7. The company’s price-to-cash flow ratio is 32.9 compared to 32.8. And the price-to-book value ratio is 65, with the long-term average being around 55.

MA PS Ratio Data from YCharts

To be fair, the only metric that isn’t significantly in line with the five-year average is the price-to-book ratio. However, all other traditional valuation measures clearly indicate that the stock is at least fully valued.

The dividend yield is not very attractive at around 0.5%. And that’s the middle of the road, historically speaking. So, the stock appears to be fully valued and this may cause some investors to hit the pause button on purchasing the stock. But while Mastercard’s valuation isn’t particularly attractive, it probably isn’t bad enough for those who own it to sell the stock. So, if you own one, it may make the most sense to sit down.

Do you sell mastercard?

If you’re a value investor or an investor looking to maximize the returns your portfolio generates, you’ll probably want to stay away from Mastercard today. If you’ve owned the stock for a number of years and benefited from a huge rise in the stock price, it might not be unrealistic to consider freezing some of your profits (even if you don’t liquidate your entire position).

However, there is another not less important factor to consider here. Mastercard and Visa frequently battle with customers and regulators due to their dominance in payment processing. Tracking such disputes can be difficult, result in large fines and potentially significant changes to the business environment. For more conservative investors, these risks, which cannot be discussed in detail as the company progresses, may be reason enough to avoid Mastercard (and Visa). It may also be enough to convince investors who have made big gains to take profits and move to stocks that are less interesting and perhaps more attractively valued.

Mastercard gives you some easy answers.

Mastercard is not a card that strongly urges purchase, nor is it clearly a card to sell. Of course, there are some investors who hate it, like dividend investors, but there are also investors who appreciate it, like growth and income investors. If you own a Mastercard, it might make sense to keep it. If you don’t have it, you might want to put it on your wish list.

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

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard and Visa. The Motley Fool 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.