GuruFocus Research
·3 min read
As of September 14, 2023, Visa Inc (NYSE:V) experienced a daily loss of 2.6%, but managed to secure a 3-month gain of 8.19%. With an Earnings Per Share (EPS) (EPS) of 7.88, the question arises: is Visa's stock modestly undervalued? This article aims to provide a comprehensive analysis of Visa's valuation and invites you to delve into the subsequent sections for a deeper understanding.
A Snapshot of Visa Inc
Visa Inc (NYSE:V) is the world's largest payment processor, having processed over $14 trillion in total volume in fiscal 2022. Operating in over 200 countries and capable of processing transactions in over 160 currencies, Visa's robust systems can handle over 65,000 transactions per second. With a current share price of $241.38, Visa boasts a market cap of $502 billion. When compared to its GF Value of $290.82, it appears that Visa's stock is modestly undervalued.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the stock's fair value. The stock price typically fluctuates around this line. If the stock price is significantly above the GF Value Line, the stock may be overvalued, and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, and its future return will likely be higher.
Considering these factors, Visa appears to be modestly undervalued. Therefore, the long-term return of its stock is likely to be higher than its business growth.
Examining Visa's Financial Strength
Investing in companies with poor financial strength can lead to a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before purchasing shares. Visa has a cash-to-debt ratio of 0.91, ranking better than 67% of 503 companies in the Credit Services industry. The overall financial strength of Visa is 7 out of 10, indicating a fair financial condition.
Profitability and Growth
Companies that have consistently shown profitability over the long term offer less risk for investors. Visa has been profitable 10 over the past 10 years. It has a revenue of $31.80 billion and an EPS of $7.88. Its operating margin is 67.04%, ranking better than 88.92% of 379 companies in the Credit Services industry. Overall, Visa's profitability is ranked 10 out of 10, indicating strong profitability.
Growth is a crucial factor in a company's valuation. The 3-year average annual revenue growth of Visa is 10.7%, ranking better than 64.43% of 492 companies in the Credit Services industry. The 3-year average EBITDA growth rate is 8.9%, which ranks better than 52.67% of 281 companies in the Credit Services industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another method of determining its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Visa's ROIC is 25.5, and its WACC is 10.07.
Conclusion
In conclusion, Visa's stock appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 52.67% of 281 companies in the Credit Services industry. To learn more about Visa stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
 - Total debt)