Visa (NYSE: V) outperformance is supported by fundamentals
Visa Inc. (NYSE: V) The stock price has climbed 180% in the past five years. The share price rebounded 4.4% after the last market decline. Visa has very interesting fundamentals and has achieved substantial performance for its shareholders over the years.
As a stock, Visa outperforms, even on a risk-adjusted basis, and has an annual Jensen alpha of 5.7% – meaning the stock has performed better than what its market might expect. risk profile. This is important because many stocks go up and seem to outperform, but it is entirely a function of the risk of the stock.
Visa goes above and beyond what you would expect from its risk profile, as measured by a beta.
We’ll take a look at the fundamentals, and what can be behind this exceptional performance.
See our latest review for Visa
One of the most compelling fundamentals of Visa are profit margins. The company has consistently had EBIT margins of over 60% over the years.
Visa’s current EBIT margin is 64.6% and is down 2% from 12 months ago. The net profit margin is also high at 48% and also fell 7% from a year ago.
Although margins have seen a recent decline, 2020 has been an unusual year economically, but the overall quality of margins remains extremely strong for Visa.
Fundamentals: Earnings per share
One way to look at how market sentiment has changed over time is to look at the interaction between a company’s stock price and its earnings per share (EPS).
In five years, Visa has managed to increase its earnings per share by 17% per year. This EPS growth is slower than the share price growth of 23% per year, over the same period. This suggests that market players hold the company in higher esteem. This isn’t necessarily surprising given the track record of five-year earnings growth.
This favorable sentiment is reflected in his (quite optimistic) PER ratio of 46.62.
You can see how EPS has changed over time in the image below.
Before buying or selling a stock, we always recommend a careful review of historical growth trends, available here.
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any split or discounted capital increase, as well as any dividend, assuming that dividends are reinvested.
In the case of Visa, it has a TSR of 189% for the last 5 years. This exceeds the return on its share price that we mentioned earlier. Dividend payments account for 9% of the extra returns.
The stock is also engaged in repurchases and has grossed some US $ 38 billion in repurchases over the past 5 years!
Key points to remember
Visa shareholders are up 18% for the year (including dividends) and tLonger-term returns (around 24% per year, over half a decade) appear to be better. Looking at a risk-adjusted basis, Visa has outperformed return expectations by 5.7% over the past year.
Margins contribute significantly to performance and the company has managed to maintain EBIT margins of over 60% over the past 6 years.
Analysts estimate that strong EPS results will continue to grow at 17.5% per year, which is close to the industry’s EPS growth of 18%.
Visa pays a low 0.55% dividend yield, but it also appears to be heavily engaged in buybacks, and has made US $ 38 billion in buybacks over the past 5 years.
The company is profitable, stable and the performance seems to be dictated by the fundamentals! Visa is a market leader in the financial services industry and although growth may decline due to maturity, the business can still perform well because it has already established a great foundation.
In addition, we have discovered 1 warning sign for Visa which you should know before investing here.
Sure, you might find a fantastic investment looking elsewhere. So take a look at this free list of companies that we believe will increase their profits.
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently traded on the US stock exchanges.
Simply Wall St analyst Goran Damchevski and Simply Wall St have no positions in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material.
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