Due to pandemic-related factors, payment stocks have taken a hiding in the past few months. Consequently, shares of stalwarts such as Visa (NYSE:V) have moved sluggishly and offer a buying opportunity. Despite what the naysayers may think, it remains a quality giant with an incredible outlook and robust fundamentals. The rise of nation-focused payment systems is a concern, but overall, there are plenty of growth drivers for V stock.
New variants of the coronavirus have hampered the flight of most stocks. Payment companies, in particular, will be impacted by the lower cross-border fees due to restrictions on international travel. However, these restrictions won’t last forever and these headwinds are transitory. Visa’s business will be booming again in the post-pandemic world of 2022. With incredible footing in the e-payments sector, processing billions of dollars in payment volumes annually, Visa will continue to turn heads this year.
Solid Track Record
Visa has performed incredibly in the decade, boasting gross margins in excess of 75% for the past five years. Moreover, its top-line has expanded at a healthy pace in the past ten years despite the headwinds. It closed out 2021 with a commendable 10% revenue growth to $24.1 billion. Additionally, its earnings per share (EPS) of $5.63 for the year was a 28% improvement from the previous year’s EPS of $4.38.
Furthermore, the company’s financial health is solid, with a growing asset base and free cash flows. For the year, Visa’s operating cash flow growth was at a spectacular 46%. After the dip in 2016, it is back on track with its free cash flow growth.
Moreover, Visa can continue to grow at a prodigious pace. With the stimulus payments and the rebounding economy, consumer spending is likely to grow at a healthy pace for the foreseeable future. Additionally, we see how non-cash payments are forming a bigger percentage of overall payments across the globe. This trend will be in place for several years and in countries that were more or less averse to the idea.
Competition Heating Up
For years, Mastercard (NYSE:MA) and Visa have dominated the global debit and credit card segments. However, we have seen the rise of nation-focused payment systems in recent years, challenging their supremacy.
For instance, we have India’s RuPay, which has grown at an unfathomable speed in the domestic market. Its usage has surged under the Indian government’s Pradhan Mantri Jan-Dhan Yojana scheme, which pushed the public sector banks to use RuPay. The network captured a 60% share of the Indian card market in 2020, representing a 45% jump from its 2017 share. Visa complained to the U.S. government about how the government-backed RuPay hurt Visa’s prospects in India.
Nevertheless, RuPay is not the only domestic payment network that has been successful. We have the Russian Mir network, which has been hugely successful in its domestic market. Moreover, Brazil, Japan, South Korea, and other countries also have successful payment networks. China’s UnionPay is also a heavyweight, an interbank network that enjoys a leadership position in the domestic market.
Therefore, the future for the debit and credit card market seems significantly more diversified than in the past. Nevertheless, Mastercard and Visa still have an 81% market share and their robust ecosystem gives them the edge over their regional-focused peers. However, the rising influence of several new payment systems could be a long-term problem for both companies.
Final Word on V Stock
Visa has been a stellar performer for several years now, and 2021 was no different despite the headwinds. Moreover, tailwinds from the economic rebound and the shift to non-cash payments will continue to benefit the company for the foreseeable future. However, the rise of regional payment companies is a problem, which could chomp away at its market share. Nevertheless, it remains in a vigorous position to push on and take V stock to new heights.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.