By examining the success stories of past stock market winners, investors can identify businesses with the potential to sustain their positive trends. A prime example is Visa (NYSE: V), whose shares have witnessed a remarkable 396% surge over the past decade, significantly outperforming major market indices. There are compelling reasons to anticipate that this impressive outperformance may persist.
Profitable growth
In the past couple of years, the economic landscape has deviated from the norm, marked by higher interest rates and inflationary pressures that have garnered widespread attention. However, Visa (NYSE: V) appears impervious to external factors that might be perceived as detrimental.
In fiscal 2023 (ending Sept. 30), the company processed an impressive $14.8 trillion in payment volume, reflecting a 5% year-over-year increase, which accelerated to 7.6% in the final quarter of the year. This robust performance contributed to a 9% rise in revenue in Q1 2024 (ending Dec. 31).
Taking a broader perspective, Visa’s growth narrative unfolds as one of consistent expansion. Over the last five fiscal years, the company has achieved a compound annual revenue growth rate exceeding 9%, with the anomaly of the pandemic-induced decline in 2020.
Visa’s resilience is particularly evident in its remarkable profitability, boasting an operating margin of 64.3% in the last fiscal year—an exceptional metric that few enterprises can match.
The scalability of Visa’s business model is a key factor contributing to its high operating margin, primarily due to the established technological and communications network supporting its payment processing capabilities.
Looking ahead, Visa still has substantial room for expansion, with opportunities to grow payment volume, revenue, and earnings. The ongoing “war on cash,” especially in emerging economies lacking sophisticated payment and financial infrastructure, positions Visa for continued growth in the coming years.
Protected from disruption
Despite the rise of various fintech platforms, Visa maintains a clear dominance, commanding over 60% of all card payment volume in the U.S. While bearish investors might point to the emergence of fintech players like PayPal and Block as potential threats, Visa has consistently demonstrated resilience and continued growth over the past decade.
The argument against disruption becomes stronger when considering that popular digital wallets, such as those offered by competing fintech platforms, actually contribute to the acceleration of cashless transactions. This, in turn, drives higher transaction volumes on Visa’s network, showcasing its adaptability to changing trends in the financial services landscape.
Visa’s competitive standing appears robust and resistant to disruption, with 4.3 billion of its branded cards circulating globally and acceptance at 130 million merchant locations. The vast reach and established infrastructure make it challenging for any new payments start-up to create a competing network from scratch.
The time is now
Acquiring shares of one of the world’s truly elite businesses may initially seem to involve a steep valuation. With shares trading at a forward price-to-earnings ratio of 28.2, representing a 34% premium to the S&P 500, the apparent cost could deter some investors.
However, considering the exceptional qualities that Visa possesses both in terms of competitiveness and financial strength, the stock remains an undeniable and compelling buy at present.
