Visa: Should Investors Raise their Bets?

Visa (V) deserves consideration from investors. Visa is a very profitable company. It touts a net income margin of 47.97%. The upward quarterly revenue performance since Q3 2020 is a compelling reason to go long on Visa. This writer is bullish on the stock.

The chart below shows the quarter-over-quarter revenue of Visa is rising, while the last 3 most recent quarters’ earnings are declining. This is understandable, as increasing revenue sometimes requires sacrificing margins. Sacrificing margins attracts new customers. It also keeps the loyalty of current customers. (See Visa stock charts on TipRanks)

The forward GAAP P/E valuation of Visa is only 40.49x. This is notably lower than PayPal’s (PYPL) forward GAAP P/E 82.80x, and Square’s (SQ) 360.38%. There is misclassification bias against V. Visa is no longer just a credit/debit card company. Visa deserves to be evaluated like a true digital wallet company, like PYPL and SQ.

(Source: Motek Moyen)

I have been using my Visa credit card as a digital wallet since 2011. Before my PokerStars account was banned in 2014, I was using a Visa credit card as a digital wallet to deposit and withdraw funds. PokerStars and other real-money poker sites still accept Visa. 

Aside from its relative undervaluation, Visa has a clear buy signal from its Stochastic Oscillator score of 23.19. Stochastic is a short-term indicator that is now saying V has a Stochastic Oversold Reversal buy signal. It means Visa’s stock has risen above 20 after being buried to an Oversold score of 19 and below.

Furthermore, investing in Visa is safe. It. It touts a Piotroski F-score of 6. Piotroski F-scores assess the strength of a company’s financial position. The highest Possible score is 9. Visa’s score of 6 makes it a safe, good value stock.

(Source: Motek Moyen)

Visa: A Digital Payments Leader

Visa deserves to be appreciated like digital payments firms PayPal and Square. Any online payment transactions are already considered digital. Visa works with Apple (AAPL) Pay, Google (GOOGL) Pay, Samsung (SSNLF) Pay, and GCash. We can deposit and withdraw to PayPal and Square accounts, using linked Visa cards. Visa’s mainstream partnership with digital wallet app owners and e-commerce vendors makes it the bigger digital payments company if compared to PayPal and Square. Visa has a derivative tailwind from the success of PayPal, Square, and Apple Pay.

Any Visa card itself is a digital wallet that consumers could use to buy anything online or in traditional retail stores. The tap-to-pay via mobile devices/apps is just a derivative idea from Visa’s old contactless payment system. Leading U.S. digital wallet Venmo also offers a Visa contactless payment credit card that has cryptocurrency cashback rewards program.

Visa is strong because it is a leader in the $5.44 trillion global digital payments transactions industry. This niche market is growing at 11.21% CAGR, and it will be worth $11.29 trillion by 2026.

Tailwind from Cryptocurrency Trading

PayPal only recently allowed cryptocurrency trading, while the Binance Visa card was launched last April 2020. Crypto.com also issued its own Visa crypto-compatible cards. Coinbase.com will also soon launch its own Visa debit card.

The cryptocurrency market is now worth more than $2 trillion. The heavy trading volume of Tether, Ethereum, Binance, and Bitcoin (BTC-USD) means Visa has a growing tailwind from cryptocurrency traders and investors.

Conclusion

The significant undervaluation of Visa makes it a good stock to consider. The ascending quarter-to-quarter revenue trend of Visa justifies the decline in quarter-over-quarter earnings. V is the most profitable digital wallet company. Its net income margin is 47.97%, much higher than SQ’s 3.60% and PYPL’s 20.42%. Visa is a dividend giver with 12 years of dividend growth.

(Source: Motek Moyen)

My buy recommendation for Visa is aligned with the bullish price targets of TipRanks-tracked Wall Street Analysts. Their average Visa price target is $280.75. My 1-year PT for Visa is $310.

The -6.27% one-month price performance of Visa’s stock (V) has made it more affordable. V is now trading -11.28% from its 52-week high price of $252.67. A cheaper buy-in window is always welcome.

Disclosure: At the time of publication, Motek Moyen did not have a position in any of the securities mentioned in this article.

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