Is Visa Stock a Bargain?

Payment processing network Visa (NYSE: V) continues to slide from its 52-week high, with shares down about 12% from their peak. Why? Wall Street could be worried about a potential recession slowing spending and hurting Visa’s business. The company recently reported earnings for the third quarter of its fiscal 2024 fiscal year, and the results were solid but not good enough to reverse the selling pressure.

So is Visa in trouble, as the stock’s recent sales might suggest? Or is this a buying opportunity for a stock that rarely sells off? Here’s what you need to know.

Growth is slowing, but only slightly

Visa is the world’s largest payments network. It makes money by charging fees for transactions using Visa-branded debit and credit cards and digital payment methods. You can think of Visa as a tollbooth operator for the global economy. Visa has grown significantly with the global economy, and the general shift away from cash payments has been a multi-decade growth story that has fueled remarkable investment returns.

Recent earnings results, however, show growth slowing somewhat. The company’s $2.42 non-GAAP earnings per share met analyst estimates, but its $8.9 billion in revenue was a slight miss ($20 million). Additionally, payment volume growth slowed across the board from the prior quarter:

Source: Visa

During the earnings call, management described its key business drivers as relatively stable. And while the Q4 preview (management commented on the business on July 21) indicated a continued, mild slowdown in growth in Q3, there was little cause for concern. Management attributed the slowdown to a variety of factors, including the recent IT outage. Visa also reiterated its full-year guidance for low-double-digit revenue growth and low-teens profit growth.

The market may be worried about Visa, but the earnings results appear to be pretty much business as usual. Management gave no indication that they were worried about a dramatic slowdown hurting the company.

Long-term opportunities remain intact

Businesses ebb and flow over time. Investors should be more concerned about Visa’s long-term direction than whether growth fluctuates a few points here and there. The good news is that Visa still has fantastic long-term growth opportunities.

According to research from PwC, global cashless payments volume is expected to grow by more than 60% between 2025 and 2030. Visa’s global footprint means it can capitalize on the growing demand for cash as emerging markets transition to debit and credit payments in the coming years.

In developed countries, new payment methods such as buy now, pay later, cryptocurrency and digital wallets could eventually take over traditional debit and credit market share. Visa is smartly embracing them.

The company launched Visa Flexible Credential this year, which allows consumers to switch between payment methods. In other words, instead of a debit card, a credit card and a cryptocurrency wallet, consumers have one credential that can switch between the two. The company recently partnered with Mark And To confirm to use this technology. It connects Visa to these fast-growing vehicles.

Visa also has a cryptocurrency innovation hub and is rolling out digital wallet products for consumers and businesses. Too many dominant companies throughout history have sat back and waited for innovative threats to grow and eventually replace them. It’s great that Visa doesn’t seem to be making that mistake.

Is Visa Stock a Bargain?

Analysts’ expectations for long-term growth are currently at their lowest since the pandemic. It’s probably no coincidence that stocks have been tracking lower growth estimates. But is the selling overdone? Shares are now trading at a forward price-to-earnings ratio of less than 26, compared with the stock’s average of 34 over the past decade. That’s nearly 25% below long-term norms.

V EPS LT Growth Estimates data by YCharts

Visa’s growth has slowed somewhat, so it’s probably fair that the stock’s valuation has fallen as well. That said, this seems like a great long-term buying opportunity. Visa dominates a multi-trillion dollar industry, is very profitable, and could grow earnings at 13% annually over the long term. The stock should beat the broader market simply by following its growth rate.

What if growth picks up again? Great! The stock’s valuation would likely return to its long-term average, and investors would be very happy about that. The bottom line? Investors can buy and hold Visa stock with confidence today.

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Justin Pope has positions in Affirm, Marqeta, and Visa. The Motley Fool has positions in and recommends Visa. The Motley Fool recommends Marqeta. The Motley Fool has a disclosure policy.