Is Mastercard Stock a Buy Now?
Over the years, Mastercard has consistently rewarded its investors. Since the company’s initial public offering (IPO) in May 2006, shares have skyrocketed, rising an astounding 12,160% as of February 3. A $1,000 investment back then would be worth $122,600 today.
The remarkable gains achieved by Mastercard are hard to overstate. Even in recent times, the company continues to produce strong financial results. For prospective investors, the critical question remains: Is this leading financial stock still a good buy?
Steady Growth in a Cashless World
Investors will appreciate Mastercard’s ability to steadily grow over the years. The shift from physical cash to cashless transactions greatly benefits the business. In the U.S., approximately half of Americans still use cash for some or all of their weekly purchases. This data highlights a significant runway for Mastercard, even in a highly developed economy with a robust payments and financial services infrastructure.
This transition has resulted in revenue growth of nearly 200% between 2014 and 2024. During this decade, the company experienced only one down year, which was in 2020 due to the pandemic. Mastercard benefits from increased payment volume and active cards over time.
The upward sales trajectory has resulted in impressive bottom-line gains as well. In 2024, Mastercard’s diluted earnings per share (EPS) rose by 17%. Over the past 10 years, it has increased at a compound annual growth rate of 16.2%. This trend is precisely what has facilitated the stock’s impressive climb.
Outstanding Profitability
Mastercard’s profitability is notable among global enterprises. Last year, the company generated a net income of $12.9 billion, translating to an exceptional profit margin of 45.7%.
This strong profitability enabled the company to report impressive free cash flow, amounting to $13.6 billion in 2024. Mastercard operates an asset-light model, which doesn’t require significant capital expenditures for growth. The communications protocol connecting merchants, consumers, and financial institutions is already largely established. Every additional transaction processed through the protocol provides a high return on invested capital.
The Power of Network Effects
Supporting Mastercard’s economic moat is the presence of network effects. Globally, there are 3.5 billion cards in use, accepted at 130 million merchant locations. More cards increase the value for merchants targeting a wide customer base to grow their sales. Simultaneously, more acceptance locations provide consumers with more places to spend. The more extensive the network, the more beneficial it becomes for everyone.
One might argue that Mastercard’s competitive position is virtually unassailable despite potential shareholder concerns about regulatory risks. The payments platform plays a critical role in the smooth functioning of the economy. It offers a secure, convenient, and fast method for transactions—an arrangement difficult to disrupt.
Valuation Considerations
In the past decade, Mastercard shares have traded at a price-to-earnings (P/E) ratio of 37.9, reflecting the company’s outstanding status, command of a premium valuation. For comparison, the S&P 500 trades at a P/E multiple of 25.5. As of now, Mastercard is 7% more expensive than its trailing-10-year average.
According to Wall Street consensus analyst estimates, Mastercard’s EPS is projected to increase at an annualized rate of 14.1% between 2024 and 2027. This outlook appears reasonable, given that it aligns with the company’s past performance averages.
However, does this growth forecast justify paying almost 40 times earnings for Mastercard? Perhaps not. Investors seeking market-beating gains might want to wait for a more favorable valuation before purchasing the stock.
