We take a look at two giants of payment transactions:
Visa $V (+0.33%) and Mastercard $MA (-0.19%) . Both stocks have delivered massive gains since the end of 2023-Mastercard is up 35 % and Visa by 33 %. But after this strong run, which offers the better opportunity today?
To answer that, let's look at three key factors for long-term return potential: Dividendsthe valuation and business growth.
1. dividends
Let's take a look at the dividend yield:
- Mastercard: 0,52 %
- Visa: 0,69 %
In terms of dividends Visa is slightly ahead in terms of dividends. However, both figures are so low that the dividend alone is not a decisive factor in the purchase decision.
2. the valuation
This is where it gets interesting. We compare the current valuation with the historical average:
- Mastercard: Trades at a price-to-free cash flow ratio (P/FCF) of 32,6x. The 5-year average is 34,5x. This means that Mastercard is currently slightly undervalued.
- Visa: Trades with a P/FCF of 30,03x. The 5-year average is 29,87x. Visa is therefore currently slightly overvalued.
Although Visa appears more favorable at first glance with a lower multiplier Mastercard is more attractively valued compared to its own history.
3. business growth
Growth is the strongest driver of long-term returns.
- Mastercard: Analysts forecast annual profit growth of 14,9 % for the next 3-5 years. Historical free cash flow growth over the last 5 years has been an impressive 22,7 %.
- Visa: The forecast is 13,0 % per year, with historical cash flow growth of 20,2 % in the last 5 years.
Both are excellent growth companies, but Mastercard shows a much stronger growth profile, which is rewarded by the market with a valuation premium.
Conclusion: The return potential
Let's summarize the factors in order to estimate the annual return potential:
- Mastercard:
- Dividend yield: ~0.5
- Valuation: ~1 % "tailwind"
- Growth: ~14.9
- Total return potential: ~16.3 % per year
- Visa:
- Dividend yield: ~0.7
- Valuation: ~-1.8% "headwind"
- Growth: ~13.0
- Total return potential: ~11.8 % per year
Mastercard currently offers the better combination of growth and a more attractive valuation. While Visa remains a top stock, the analysis suggests that Mastercard has the potential to double its investors' capital over the next five years.
My Youtube channel for more stock analysis: www.youtube.com/@Verstehdieaktie
