Mastercard Inc (NYSE:MA) is a global technology company and an industry leader in payment systems. Founded in 1966, MasterCard operates the second largest open loop card network in the world. It is a large-cap stock with a market cap of $65 billion, yet did not fail to beat the market index on a consistent basis in the past. This trend is likely to continue in the future. The article ponders upon some of the factors which makes MasterCard a long term buy.
Consistent growth in the past
From launching its IPO in 2006 to March 2013, the annualized return of Mastercard Inc (NYSE:MA) is over 40%. If I take the overall return, it is a huge 1000% that beats even some of the top performers. For growth investors, this is a very satisfying fact. The stock has faltered just twice in 2008 and 2010, the reason being market turmoil. Over the past 1 year, MasterCard has outperformed the S&P 500 with a return of 20% compared to the index’s 15%. Credit card stocks in general have done well, however Mastercard Inc (NYSE:MA) emerged to be the top performer in all aspects – long-term growth, value for money and strong fundamentals.
Strong Q4 results
Pre-tax income increased by 12% in the last quarter. Mastercard Inc (NYSE:MA) has a cash reserve of $5 billion. The debt-to-equity (D/E) ratio is low at 0.74 indicating a minimum amount of leverage in its balance sheet. In the last quarterly results, MasterCard reported better than expected earnings results. Revenue increased by 10% mainly due to volume and transaction growth. The return on equity (TTM) of the stock is a huge 43% compared to the industry’s 16%. That signifies how much value the company has been delivering to its shareholders over the years. MasterCard doubled its quarterly dividend in February and bought back $2 billion worth of its shares. The 5-year average annual dividend yield rate is 17%. However, I am not suggesting this stock as the best pick for dividend investors as the company might compromise its future yield for growth purposes.
Beating the competition
The closest competitor of Mastercard Inc (NYSE:MA) has to be Visa Inc (NYSE:V) with a market cap of $110 billion. Visa Inc (NYSE:V) and MasterCard are similar in many aspects such as brand equity, strong fundamentals and revenue and EPS growth. However, Visa Inc (NYSE:V) has provided an annualized return of 21% over the period of last 5 years compared to MasterCard’s 44%. Visa Inc (NYSE:V) has a relatively higher P/E and P/S ratio indicating that it is trading at a slightly more expensive price than Mastercard Inc (NYSE:MA). Among the 2 investments, I would prefer MasterCard because of its higher net margin and return on invested capital. Also MasterCard is on the verge of growth momentum in the form of global expansion which gives it a slight edge.