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Do Visa’s Multiples Look Attractive?

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Price-to-earnings multiple

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

The trailing-12-month (or TTM) PE ratio for Visa is 33.26x, which is lower than Mastercard’s and PayPal’s multiples of 37.44x and 41.23x, respectively. However, Visa’s PE ratio is much higher than its other peer, Global Payments (GPN), which trades at a multiple of 26.66x.

Based on Wall Street’s earnings forecast for the next 12 months (or NTM), Visa’s PE ratio is pegged at 26.81x. The company’s peers such as Mastercard, PayPal, and Global Payments have forward PE multiples of 29.20x, 32.87x, and 21.43x, respectively.

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Visa’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 second highest in the space after Mastercard’s. Wall Street’s fiscal 2018 earnings growth projections for Visa, Mastercard, PayPal, and Global Payments is 31.9%, 40.2%, 23.2%, and 28.4%, respectively.

Price-to-sales valuation

When earnings-based valuations are high, it is better to consider another multiple like the price-to-sales ratio. Visa currently trades at a TTM price-to-sales ratio of 15.85x, which is the highest in the entire industry. Peers Mastercard, PayPal, and Global Payments have price-to-sales multiples of 16.13x, 7.26x, and 5.26x, respectively.

Based on Wall Street’s earnings forecast for the next 12 months (or NTM), Visa’s price-to-sales ratio stands at 13.83x. The company’s peers such as Mastercard, PayPal, and Global Payments have forward PE multiples of 13.73x, 6.09x, and 4.67x, respectively.

Visa together with its peers mentioned above makes up ~22.3% of the ETFMG Prime Mobile Payments ETF (IPAY).

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