Higher price-to-earnings ratio
Visa (V) trades at a PE (price-to-earnings) ratio of ~35, which is relatively higher than that of American Express (AXP), MasterCard (MA), and Discover Financial (DFS). Visa’s PE is also higher than that for the Technology Select Sector SPDR Fund (XLK). The below graph compares Visa’s PE ratio with that of AXP, MA, DFS, and XLK.
Visa has historically traded at a higher valuation compared to MA, AXP, or DFS. Its consistently higher PE indicates that investors anticipate higher earnings growth for it in the future. A consistently high PE might also reflect investors’ positive opinion about the quality of the company’s earnings and management’s performance.
Visa offers higher total returns
The cumulative total returns on Visa’s (V) common stock were higher than that for the S&P 500 Index and S&P 500 Data Processing Index over the last five-year period.
The above graph compares the cumulative total return on Visa’s common stock with the S&P 500 Index and the S&P 500 Data Processing Index from September 30, 2009, through September 30, 2014.
Visa competes against all forms of payments in the marketplace. This includes payments by cash and checks. Thus the company has massive potential to expand, especially in emerging markets where card penetration is still very low.
New companies are entering into the payments sector in the emerging markets, such as RuPay in India. However, Visa’s value proposition of convenience, interoperability, accessibility, and security offers it a key competitive advantage. Its global brand, wide range of payment products, and proven track record of processing transactions gives it a distinct edge over new players.
Visa’s position in the Chinese market could be more challenging, as UnionPay remains the sole processor of domestic transactions.