Mastercard Inc (MA) Is Undervalued

MasterCard Inc (NYSE:MA) is prepared to take advantage of a growing middle class in the developing world, and this makes it a solid purchase for long-term investors.

Recently, the company announced another step toward making overseas payments easier, which is just one example of the firm’s mission to prosper from the global market. And with not only a growing international middle class, but also an ever-integrating world of business and travel, credit-card use overseas is likely to spike.

MasterCard Inc (NYSE:MA) and The Western Union Company (NYSE:WU) on June 20 announced they would join efforts to allow small businesses to send payments internationally in 135 currencies. That’s just one more step in the firm’s advanced technology that is facilitating transactions in 210 countries and territories. Making overseas payments easier is a top priority of the firm, and that makes it worthy of a stock purchase.

MasterCard is a hidden gem

In taking a look at the company’s financials, it would appear the stock is fully valued. But the price doesn’t reflect the firm’s long-term revenue-generating potential. The PE ratio, at 25.7, indicates investors have moderate growth expectations for the firm. The consumer financial services industry averages a 14.5 PE ratio. Furthermore, the price-to-book ratio of 10.6 is one of the highest in the sector. These indicators tell me the company could be in for a couple years of little to no growth in the price of the stock, but as more global integration is achieved, the price will leap higher — and that integration will be reflected in steady increases in revenue from overseas transactions.

Competition’s position overseas

How is MasterCard Inc (NYSE:MA) better than Visa Inc (NYSE:V) and American Express Company (NYSE:AXP) at generating revenue throughout the world? Let’s take a look.

Visa Inc (NYSE:V) has 20 “buy” or better analyst ratings, compared to 10 “holds” and zero “sell” recommendations. However, the firm operates in 200 countries, 10 fewer than MasterCard Inc (NYSE:MA). And Visa doesn’t look to be making as much of a plunge into global integration, as the majority of company progress relates to integration on the domestic front. For example, the firm has integrated a real-time initiative that brings offer programs to members of ICBA Bancard.