Visa Is Still A Buy

Visa (V) really is everywhere we want to be. It is one of the best performing stocks we have recommended, and we think there is room for this amazing growth stock to keep going higher. Just look at this nonstop growth:

Source: Yahoo Finance

The fact is that the Street is pushing the stock to new all-time highs, every quarter. Without a broader market pullback, or a drastic decline in performance, the stock is just going to keep moving higher it seems. Now, we will be clear, the stock isn't cheap, and the Street has been baking into the stock prices ongoing beats against consensus estimates, with its multiple approaching 45 times trailing earnings. Right now, the stock is at 52-week highs, again, and flirting with going higher as we write. The question is though, is this valuation justified? Can this run continue? In this column, we examine trends in sales and earnings, and discuss our updated expectations looking ahead for Visa here in 2018.

Revenue continues to impress

It all starts with revenues. The just-reported quarter saw another impressive top line for Visa, with solid increases over the past three years:

Source: SEC filings

Let us be clear. This is exactly what we want to see. The company delivered a strong report, and revenues were strong, and surpassed our expectations for $4.82 billion in revenues. The results strongly suggest the company is executing to perfection and also is indicative that the company will continue its stable and reliable growth. Net revenue for the quarter came in at $4.86 billion, a 9% increase over Q1 2017. This was primarily due to a 10% jump in payment dollar volume and a 12% increase in processed transactions to approximately 30.5 billion. Transaction growth continues to grow significantly:

Source: SEC filings

This is simply stellar execution once again. This helps explain the growth in the stock; continued growth like this is impressive for a long-standing company like Visa. So once again, revenues were up nicely on the back of transactions increasing. What is most impressive for us is that our expectations were surpassed with authority top line. Revenues surpassed our expectations in part because both dollar payment volumes and processed transactions exceed our 8% expectation and met our and 12% projections respectively for these measures. This is a major sign of strength. What we have concerns with of course is that when revenues continue to rise, we question whether expenses are rising and thus offsetting these gains.

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Disclosure: We are long V.

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Barry Hochhauser 2 years ago Member's comment

Good read Quad 7 Capital, but what's your take on Noah Kiedrowski's opposing view on $V?

Would love to see you two debate #Visa so I could figure out which one of you is right!

Noah Kiedrowski 2 years ago Contributor's comment

Take a look at my most recent article with updated data from the most recent quarterly results in which revenue only grew by 9%.

Quad 7 Capital 2 years ago Author's comment

Revenue growth matters but the multiple assigned is due to earnings growth. Take a look a Visa chart...we wouldnt bet against it. Same with mastercard.

Noah Kiedrowski 2 years ago Contributor's comment

Without revenue growth, businesses will not be rewarded with a high multiple. Earnings growth can be inflated by buying back shares so revenue is the metric that bests captures growth. Look at Netflix, Amazon, Salesforce... it's all about revenue in order to get assigned a high multiple. Slowing growth at all-time highs in a raging bull market, I'll pass. I'm not betting against Visa but certainly not buying at these levels.

Quad 7 Capital 2 years ago Author's comment

For new companies or hypergrowth companies I agree. But take a look at say GM. Sold off assets..going to make less sales but improve profitability. Look st Fossil. Stock flew when they said sales would be much lower and company leaner but profit higher. Stocks can be valued funny, but profit matters. Always good to get another opinion though thanks for the contributions