Visa: $14 Trillion in Transaction Volume
In 2022, the company processed $14.1 trillion in total transaction volume, well ahead of its next closest competitor.
Highlights
Investment Strategy: Focus on low-effort, low-risk investments for steady cash flow.
Visa's Strength: Visa dominates the U.S. payments market with a 60% share and has a strong global network.
Investor Watchpoints: Monitor rising consumer debt and competition from fintech companies, which could affect Visa's performance.
With the responsibilities of a full-time job and the chaos of coordinating various aspects of family life, the last thing I want is an investment that requires excessive effort. Unlike the thrill of betting on a big win, my investment strategy revolves around generating a steady cash flow. Low effort, low risk, and the ability to keep the money rolling are my cornerstones when investing. Primarily, I methodically invest in the S&P 500 and pick a few notable stocks whenever I find solid fundamentals. Visa V 0.00%↑ is surely one of those remarkable stocks. Slowly but steadily, I seek to grow a portfolio that will allow me to secure my long-term financial future. Writing about money, business, and investing in the U.S. is my strategy to achieve economic freedom and reduce dependence on the state.
Visa: a well-rounded company with outstanding performance over the years
Since going public in 2008, Visa V 0.00%↑ has delivered stellar returns of 21.5% annually to its investors. Visa is a blue-chip stock with a dominant position in the payments industry, holding around 60% of the total U.S. market, which gives it a solid financial footing. However, its dominant position has received criticism from regulators, who want more competition in the market.
Visa’s stock and financial performance have held up exceptionally well in recent years amid inflationary pressures and rising interest rates. Today, the stock is trading close to an all-time high reached in February 2024. With consumer debt on the rise, is now a good time to buy the stock? Let's find out.
Visa's widespread network is a huge advantage
Visa has an incredible competitive advantage as the largest payment network operator in the world. The company has had over six decades to build up its merchant and customer base, giving it strong network effects. It has gained the trust of its banking partners. As its network expands, Visa can use those funds to reinvest in different payment verticals, scale up, improve security, and attract more business.
In 2022, the company processed $14.1 trillion in total transaction volume, well ahead of its next closest competitor, Mastercard, which processed $8.2 trillion. Smaller competitors like American Express processed $1.5 trillion in volume. Smart deals with the proper entities allowed Visa to achieve such a dominant position. Even for an event as global as the Paris 2024 Olympics, Visa is the only payment method supported.
Investors should keep an eye on these two points
Visa investors should keep an eye on a couple of things. One is rising consumer debt balances. U.S. credit card debt now stands at $1.13 trillion. These rising balances and historically high credit card interest rates could weigh down consumer spending, dragging financial services companies down with them.
Moreover, despite Visa's clear dominance, as evidenced by its 60%+ share of all card payment volume in the U.S., bearish investors can quickly point to the rise of several fintech platforms as an obvious reason to be a bit more bearish. For example, PayPal PYPL 0.00%↑ and Block SQ 0.00%↑ could drive higher activity levels toward their platforms.
Is Visa stock a buy?
Although the stock is near an all-time high, it trades at a reasonable valuation at 32.5 times earnings (P/E ratio) and 28.5 times forward P/E, which are slightly below its 10-year average P/E of 33.8.
Considering all the strong fundamentals, my target entry price is around USD 260. I would dollar cost average achieving a target average price of USD 280. My exit target will not be determined by any stock price but by the fact that I will keep an eye on the Fed's actions regarding interest rates and credit card debt and Visa's next earnings report, which is coming in July 2024.
