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Do Mastercard’s Valuation Multiples Look Attractive?

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Price-to-earnings multiple

The PE (price-to-earnings) ratio is considered the best multiple to value financial technology companies like Mastercard (MA). At current market prices, the stock trades at a premium valuation to most of its peers, with the exception of PayPal Holdings (PYPL).

The TTM (trailing-12-months) PE ratio for Mastercard is 37.43x, which is lower than PayPal’s multiple of 41.12x. Mastercard’s PE ratio is much higher than Visa’s (V) multiple of 33.38x and Global Payments’ (GPN) multiple of 26.67x.

Considering Wall Street’s earnings forecast for the next 12 months, Mastercard’s forward PE ratio comes in at 29.2x. Visa, PayPal, and Global Payments have forward PE multiples of 26.91x, 32.79x, and 21.43x, respectively.

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Mastercard’s premium valuation seems justified primarily due to the strong worldwide growth projections for digital payments. Moreover, the company’s earnings growth projection for fiscal 2018 is the highest in this space. Wall Street’s fiscal 2018 earnings growth projections for Mastercard, Visa, PayPal, and Global Payments are 40.2%, 31.9%, 23.2%, and 28.4%, respectively.

Price-to-sales valuation

If earnings-based valuations are high, it’s better to consider another multiple like the price-to-sales ratio. Mastercard currently trades at a TTM price-to-sales ratio of 15.71x. Visa, PayPal, and Global Payments have price-to-sales multiples of 15.91x, 7.24x, and 5.18x, respectively.

Based on Wall Street’s earnings forecast for the next 12 months, Mastercard’s price-to-sales ratio stands at 13.37x. Visa, PayPal, and Global Payments have forward PE multiples of 13.88x, 6.07x, and 4.6x, respectively.

Mastercard and its peers comprise ~22.3% of the ETFMG Prime Mobile Payments ETF (IPAY).

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