Mastercard (NYSE:MA) is one of the leaders in consumer credit. Often mentioned in the same breath as its largest competitor Visa (NYSE:V), the company has been right at the forefront of getting short-term debt into users’ hands. The company is up today, and the gain can be traced back to one key point. Mastercard announced a new program that would allow financial institutions like banks to offer access to cryptocurrency trading systems.
Mastercard’s platform would serve as an easy connection between the banks and Paxos, a cryptocurrency trading program already used by PayPal (NASDAQ:PYPL).
The new program would offer a means to trade crypto that is both highly secure and compliant with applicable regulations, which are the two biggest pain points when it comes to trading cryptocurrency for banks.
There is certainly still some demand for cryptocurrency, especially at the institutional level, and Mastercard is still currently serving ably as the last line of defense for consumers. With a macroeconomic environment rapidly souring, however, it’s not looking like good times are ahead.
There is still room for opportunity with Mastercard, and I’m bullish accordingly. Just watch out for that last step; it will likely be a doozy.
Investor Sentiment for MA Stock is Bright, but with Growing Shadows
Right now, investor sentiment metrics are looking positive, though there are some signs those good times may not last much longer. Currently, Mastercard scores a Perfect 10 rating on TipRanks’ Smart Score. That’s the highest level of “outperform” and the highest score a company can get. It also means a near-certainty that the company will ultimately do better than the broader market. Despite this, however, Mastercard insiders are abandoning ship.
Insider trading at Mastercard has been exclusively sell-driven since June 2022. Not a single insider has purchased a share of Mastercard since May. The last informative sell took place just two months ago, as the Mastercard Foundation sold just over $310 million in stock over two transactions.
Meanwhile, the aggregate tells a slightly more optimistic story. In the last three months, Mastercard insiders sold stock three times. There have been neither sales nor purchases since July 2022.
Pulling back to the last 12 months, meanwhile, shows 31 purchases and 42 sales. While there was buying interest from insiders, there was more selling interest over both the last three months and the last 12 months.
Mastercard is the Consumer’s Friend of Last Resort
Mastercard is one of the biggest names in consumer debt around, and consumer debt has been spiking in recent months. With inflation on a tear and supply chain maladies still striking, consumers have turned to debt in growing numbers. A report released just today from the Washington Post reveals that consumers are indeed hitting the cards again. Currently, Americans owe a collective $887 billion in credit card debt right now.
That’s up 13% against this time last year. This is the fastest rise seen in the last 20 years. It represents a significant new hazard for the entire economy. The Post’s report pointed out that while unpaid credit card debt was hardly sufficient to crash the U.S financial system, it could make a tough recession even tougher.
If all those consumers who owe that $887 billion suddenly stop spending, it could drag down consumer-facing operations and make a recession even worse. Personal bankruptcy filings would also serve to deepen a recession.
Worse yet, consumers aren’t using that credit for impulse buys or expensive toys: they’re using them for food. A report from Forbes in September noted that rising numbers of consumers were buying groceries using buy-now-pay-later systems like Klarna.
Take all these points together, and a particularly unpleasant picture emerges. We’re seeing customers already so strapped for cash that they’re turning to credit to buy food.
That increases the chances of bankruptcy filings and adds a further likelihood of drag, particularly to Mastercard. Chapter 7 bankruptcy, after all, has a 95.3% success rate for discharging credit card debt.
That’s a ticking time bomb under Mastercard. Although the new cryptocurrency connection will likely bear fruit for Mastercard, it just won’t be as much as it would have two to five years ago.
Now, we’re walking into dangerous economic conditions. Consumers are likely to spend less and even possibly discharge their credit card debt. This is a perfect storm inbound on Mastercard.
Is MA Stock a Buy?
Turning to Wall Street, Mastercard has a Strong Buy consensus rating. That’s based on 20 Buys and one Hold assigned in the past three months. The average Mastercard price target of $400.80 implies 34.69% upside potential. Analyst price targets range from a low of $345 per share to a high of $463 per share.
Conclusion: MA Stock is Great for Now, but be Careful
Right now, Mastercard is enjoying a state of prominence. People are turning to it for everything from groceries to cryptocurrency. That’s good news for Mastercard going forward, as it helps ensure its revenue profile. The bad news, though, is that those good times could stop rolling at any time. In addition, the crypto market has been in freefall for the last few months.
These aren’t prime conditions for the market; as consumers struggle with rising gas prices and even more rapidly rising food prices, the odds of consumers interested in Bitcoin fall to match. Thus, this new leg of Mastercard’s operations will likely not see its full potential.
Thus, I’m bullish on Mastercard, but maybe not for long. Mastercard is still a leader in credit. The bills are being paid, and income is coming in. Some new investors will buy cryptocurrency, and that’s good news for Mastercard. However, the party is likely to stop soon. Just be ready for when it does.
