Mastercard (NYSE:MA) boasts one of the world’s largest payment networks, ranking third in purchase transactions in 2022. Its extensive scale creates network effects and cost advantages, leading to higher profit margins compared to smaller rivals like American Express and PayPal.
Therefore, let’s examine the reasons investors should consider buying and holding MA stock for the long term.
MA Fundamentals
First, Mastercard is set for growth, driven by robust consumer spending, especially in travel, an improved services lineup, increased cross-border transactions, and global expansion. As a result, MA’s stock outperformed the industry in the past year, rising by 28.9% compared to the industry’s 16.8%.
Next, Mastercard, valued at $391.6 billion, is a premier global payment solutions firm. It generously offers an array of services for credit, debit, mobile, web, and contactless payments to financial institutions and other entities.
And, thanks to strong financial performance, Mastercard maintains aggressive business investments. In Q2, they reported a 14% revenue increase to $6.3 billion, driven by robust dollar volume and processed transactions. Earnings surged by 28% to $3.00 per diluted share.
Robust Financials and Standing
Mastercard leverages robust network effects with 3.2 billion active cards and a vast merchant network. Specifically, its widespread acceptance offers unparalleled convenience, making it a compelling choice for consumers and a strong position for merchants.
Every stock encounters challenges, and Mastercard is no different. A major concern is the unpredictable state of the U.S. economy. As a cyclical financial stock, Mastercard relies on economic growth. If the U.S. economy falters, consumer and business spending could decrease. Consequently, this impacts its primary revenue source of merchant fees from transactions.
Mastercard is poised for faster growth than the global payments industry, as it has outperformed in the past. Morgan Stanley predicts low to mid-teens annual revenue growth through 2024, surpassing industry averages.
Buy the Stock Now
Mastercard consistently rewards shareholders with buybacks, which should boost bottom-line growth. Further, Wall Street anticipates an impressive 21% annual earnings growth per share.
Additionally, Mastercard’s strategic decision to avoid lending protects it from significant downside. Unlike potential lenders, Mastercard doesn’t face loan losses and credit delinquencies during economic downturns, allowing for a swift recovery. Additionally, it benefits from an inflationary environment, as higher prices for essential goods and services lead to increased fee revenue. If core inflation stays elevated, Mastercard investors stand to gain.
Given its valuation multiple of 37.4 times earnings, down from the three-year average of 42.4, Mastercard is a buy this October.
On the date of publication, Chris MacDonald 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.
