Predicting the future position of Visa's stock within the next decade is a speculative endeavor.
Predicting the future position of Visa's stock within the next decade is a speculative endeavor.
Over the past decade, Visa's (V) stock skyrocketed approximately 380%, surpassing the S&P 500's less than 190% increase. This prosperity is attributed to Visa's continuous growth, robust competitive advantage, and resilience during economic downturns, winning over investors' favor.
But the question arises: Can Visa's stock soar higher in the next decade? In the following analysis, I'll evaluate the company's growth rates, hurdles, and valuations to make an informed decision.
How rapid has Visa's expansion been in the past decade?
Despite Visa's association with credit and debit cards, it neither issues cards nor manages those accounts. Instead, it partners with banks and other financial institutions to issue Visa-branded cards and receives a percentage of the processing fees for transactions. This streamlined model, also employed by Mastercard (MA), allows Visa to swiftly expand with minimal credit risk.
Visa and Mastercard dominate the card-payment network market, leaving most businesses to comply with transaction fees. Emerging digital payment systems, such as digital wallets, may not pose a threat to Visa as most wallets still depend on active credit or debit cards.
From fiscal 2014 to fiscal 2024 (concluding on Sept. 30), Visa's revenue grew at a compound annual growth rate (CAGR) of 11%, while its earnings per share (EPS) surged at a CAGR of 16%. This consistent expansion was maintained even amid a turbulent global economy beset by COVID-19, geopolitical conflicts, soaring inflation, and high interest rates, further testifying to Visa's growth potential.
What challenges will Visa encounter in the forthcoming decade?
Although seemingly unscathed, Visa faces several macroeconomic, competitive, and regulatory hurdles. The company must adapt to inflationary pressures, which curtail customer spending. The Fed's outlook for fewer rate cuts in 2025 indicates that inflation remains unchecked.
Direct competition from Mastercard (holding a smaller share of the market) or American Express (targeting high-income customers) is limited. However, platforms like Affirm are attracting younger and lower-income consumers with its 'buy now, pay later' service, posing a potential threat.
Directly linked digital wallets, such as PayPal and Zelle, compel Visa to confront fragmentation in the market. FedNow, an instant payment system launched by the Fed, even poses a menacing challenge to traditional card-processing networks. These emerging competitors can gradually weaken Visa's competitive edge and lure away its consumer base.
As for regulatory challenges, Visa and Mastercard have been under pressure to lower transaction fees for the past two decades. Although the companies agreed to a minor fee reduction in a preliminary settlement with merchant groups, a U.S. judge rejected the deal in June, suggesting that their pricing power may be further restricted, affecting both company's long-term growth potential.
What is Visa's expected growth trajectory in the next decade?
Despite these challenges, Investors should monitor the progress of these factors, as Visa will continue to be synonymous with card-based payments for the foreseeable future. Given the market's secular growth, we can expect its stock to increase significantly in the coming decade.
From fiscal 2024 to fiscal 2027, analysts forecast a CAGR of 10% for Visa's revenue and 13% for EPS. Between 2023 and 2032, the global credit card payments market could grow at an 8.8% CAGR, according to Allied Market Research. Therefore, engineers a conservative estimate of a 10% CAGR for Visa's EPS from 2024 to 2035.
Assuming Visa retains its current multiple and still trades at 28 times forward earnings by the closing year, its stock could appreciate 145% to about $784 per share in the next decade. While this growth may not match its previous decade, Visa remains an excellent long-term buy, hold, and forget stock.
Following Visa's impressive growth over the past decade, investors are considering whether the company can continue its upward trajectory. Despite facing challenges like inflationary pressures, competition from digital payment platforms, and potential regulatory hurdles, analysts expect Visa's revenue and EPS to grow at a CAGR of 10% and 13% respectively from 2024 to 2027. These projected growth rates, coupled with Visa's continued dominance in the card-payment industry, make it a promising investment opportunity for those looking to invest in finance and see their money grow.
In light of these forecasts and Visa's resilience in the face of past economic challenges, many investors view Visa as a long-term hold. With the company's stock projected to appreciate by 145% by the closing year of the next decade, investing in Visa may be a wise decision for those looking to build wealth through finance and smart investments.