Visa (NYSE:V) stock was hit hard due to the novel coronavirus, but has since bounced back a bit from the pandemic selloff. And while we like V stock for the long term, there are still some near-term risks to deal with.
That’s the case for many high-quality companies, as well. For instance, Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and Facebook (NASDAQ:FB) will see a hit to revenue as digital ad spending drops. However, their business models are not destroyed due to a few quarters of soft revenue.
That said, Visa is in a similar boat. MasterCard (NYSE:MA), American Express (NYSE:AXP) and others are too. Overall, consumer spending is taking an obvious hit among the coronavirus outbreak and that won’t be good for these companies. But long-term, we’re still confident.
V Stock vs. Coronavirus
Visa is a great company and a cornerstone in the portfolios of many investors and funds. Unfortunately, though, its business is uniquely exposed to the coronavirus.
Consumer spending will take a hit, not just in the U.S., but globally. That’s an obvious negative impact to Visa and its peers. On the one hand, e-commerce sales have been strong, as have sales at big-box retailers as consumers stock up on essentials. We’ve seen or heard as much from companies like Costco (NASDAQ:COST), Target (NYSE:TGT), Lululemon (NASDAQ:LULU) and Nike (NYSE:NKE). By the way, all of these companies are of high quality, and we like them quite a bit.
While Visa, MasterCard and others are benefiting from this increase in sales (particularly e-commerce), it’s not enough to offset the clear decline in overall retail sales. Retail sales fell 8.7% in March, a record decline since the numbers have been recorded. There were some pockets of strength, mostly in food and beverage, health and personal care and general merchandise. However, there were enormous declines in bars and restaurants, furniture, clothing and accessories and motor vehicles and parts.
That brings me to another often overlooked point: Gasoline. Travel is in decline, but so is the simple commute to work or drive across town. So as oil prices and gasoline demand plunge, credit card companies will feel the pinch, too. Lower gas prices are great for consumers, but not for payment processors. For what it’s worth, gas station sales fell 17.2% in March.
Visa’s Long-Term Drivers
Click to Enlarge
However, there is good news. For starters, the secular shift from cash and check to credit and debit has been in place for quite some time, and will remain in place for year to come. The coronavirus won’t disrupt this trend, and in all likelihood, it will probably accelerate it.
The payment space includes credit and debit cards, but it also includes contactless solutions like Android and Apple (NASDAQ:AAPL) Pay and tap-to-pay technology — as well as digital payments. All of these payment solutions are likely to see increased adoption as a result of the coronavirus, and that’s a win for Visa, too.
As long as consumers are spending, Visa is making money.
The Number’s Don’t Lie for Visa
Here’s the thing about Visa. Yes, its business will take a hit over the short-term, but it simply equates to an opportunity for long-term investors. Investors who own Visa, own one of the most profitable entities imaginable.
V stock churns out gross margins north of 80%. That’s an astounding measure in line with some of the top software companies out there. Equally impressive is the company operating margin, which stands at 66.7%. In short, this company is nothing but a cash cow that continues to evolve as the payment processing space evolves.
The question isn’t whether Visa is or isn’t a stock to own — it most certainly is — but at what price it should be owned at? Admittedly, the stock is already up about 23% from the lows. However, it’s still down more than 20% from the February high.
If investors can grab V stock on a discount, I think they’ll be very happy in the years to come. That may come to fruition due to the economic halt we’re currently experiencing, but don’t expect this sale to last forever. Earnings and revenue estimates are currently flat for 2020, but the economy will come back to life, and so too will Visa.
There’s a reason why shares are up 3.6% over the past year, 82% over the past three, 151% over the past five and 636% over the past ten. That’s because Visa is a winner.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
