Up 37% just since October 2022’s cyclical low, Visa (NYSE: V) has easily been one of the market’s best-performing stocks over the past year. Some investors might even fear it has risen too far for them to jump into the stock now.
Those fears are unfounded. Visa is one of the few stocks with the potential to continue chugging higher no matter what the future holds. It’s still perfectly fine to buy in the wake of its sizable rally.
In fact, most investors would probably be wise to do so sooner rather than later.
You know the company, of course. Visa is one of the world’s biggest payment middlemen, and is the biggest outside of China (where UnionPay dominates). The organization facilitates well over 200 billion credit and debit card purchases every year, handling a total of $14.8 trillion worth of payments in its recently ended fiscal 2023. Visa’s cut of this business? It collected $32.7 billion worth of revenue for itself, turning $17.3 billion of that amount into net income. Both numbers were new company records.
Its growth is driven by a trio of major trends, one of which is inflation. As prices rise, so does the amount of total payment volume Visa handles. In that its fees are based on the size of the total transactions it helps make happen, bigger tickets lead to bigger bucks for Visa.
Another tailwind working in its favor is the proliferation of payment cards and the ever-growing number of merchants able to accept such payments. The company reports there are now over 100 million merchants equipped to swipe one of the 4.2 billion Visa cards currently in people’s hands. Neither of these numbers was so big just a few years back. Yet, there’s plenty of room for both metrics to continue growing.
And they likely will. That’s because Visa makes a point of innovating in ways that make it easier — and even more desirable — to accept as well as use its debit and credit cards. The company operates a handful of innovation centers all over the world, each charged with independently finding ways to better meet the unique needs of merchants and consumers in their respective regions.
It’s the third trend, however, that truly makes Visa stock worth buying now, despite its recent run-up.
There was a time when credit card use was the exception rather than the norm; consumers only whipped out their plastic for bigger, less frequent purchases. Cash and checks were how most goods and services were paid for.
Not anymore, however, and decreasingly so.
For perspective, the Federal Reserve reports that as recently as 2012, a full 40% of purchases made in the United States were completed using cash. Only 17% of these transactions were made with a credit card while debit cards weren’t much more popular at 24%. Fast-forward to today, when the Fed says cash changes hands only 18% of the time for purchases made within the U.S., while credit and debit cards facilitate 31% and 29% of domestic transactions, respectively. The same shift is evident worldwide, even if some markets’ transitions are lagging that of the United States.
There’s every reason to expect this shift will carry on for the foreseeable future.
See, cash usage is particularly unpopular among the digitally native under-40 crowd, who are more comfortable with the idea of cashless solutions like app-based in-store purchases or online shopping. This cohort of U.S. consumers uses cash for less than 13% of their purchases. They’re much bigger fans of debit and credit cards, which they use for a full 70% of their spending. This crowd also shows the least interest in ACH (bank transfer) purchases, which account for only about 11% of their spending.
As these young people age into their highest-spending years, look for Visa to benefit disproportionately. Also, bear in mind many of these consumers are now raising children of their own. These kids, who will be even more digitally native than their parents, are picking up on the convenience and speed of card-based buying.
A perfect, risk-free stock? No, there’s no such thing. Interested investors should acknowledge there’s plenty of competition in this arena, and Visa is at least somewhat economically sensitive. It never hurts to be aware of potential threats.
By and large, though, Visa is more like a consumer staples stock and less of a cyclical stock by virtue of the place it occupies in the economy. That’s a powerful position to be in, particularly given how disinterested people are in switching their cards to a new service provider, despite having plenty of incentive to shop around. Well-run loyalty and rewards programs like the ones Visa’s partners offer have a great deal to do with that.
Just bear in mind this company and its stock should be viewed strictly through a long-term lens.
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