We came across a bullish thesis on Mastercard Incorporated (NYSE:MA) on Rijnberk InvestInsights’ Substack by Daan Rijnberk. In this article, we will summarize the bulls’ thesis on MA. Mastercard Incorporated (NYSE:MA)’s share was trading at $521.36 as of Jan 3rd. MA’s trailing and forward P/E were 39.41 and 32.15 respectively according to Yahoo Finance.
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Mastercard has cemented its position as a global leader in digital payments, thriving within a powerful duopoly alongside Visa. Processing 25% of global card transactions, Mastercard handles $9 trillion annually through 143 billion transactions facilitated by over 3.3 billion active cards. Its business model, which collects a small fee of around 0.3% per transaction, is bolstered by high transaction volumes, enabling consistent double-digit revenue, EPS, and free cash flow growth over the past decade. This stability, even during economic downturns, highlights Mastercard as a resilient, long-term investment.
The payments industry continues to fuel Mastercard’s growth, with digital transaction volumes projected to expand at a 16% CAGR through 2029. Mastercard is well-positioned to capitalize on this trend, expanding its market share in key regions like the U.S. and Europe. Merchant acceptance has doubled since 2020, now exceeding 150 million, underscoring its competitive strength. With cash still dominating a significant share of global transactions, Mastercard has a vast runway for growth. Management anticipates that the ongoing shift to digital payments will drive 95% of revenue growth, ensuring the company remains at the forefront of the industry.
In addition to its core processing business, Mastercard’s value-added services segment has emerged as a key growth driver. This includes offerings like fraud prevention, data analytics, and loyalty programs, which not only enhance customer relationships but also generate higher margins. These services diversify Mastercard’s revenue streams and strengthen its long-term growth potential.
Despite its robust fundamentals, Mastercard shares lagged the S&P 500 for much of 2024, weighed down by regulatory concerns. However, as these fears subsided, the stock rebounded strongly, gaining 20% in six months. While currently trading near 33x earnings, the company’s growth trajectory remains intact, supported by consistent financial performance, a dominant competitive position, and the secular shift toward digital payments.
Recent financial results highlight Mastercard’s resilience. Revenue rose 13% year-over-year, driven by strong consumer spending and improved global macro conditions. Gross Dollar Volume grew 10%, with cross-border volumes surging 17%, reflecting continued momentum in travel-related and broader spending. Value-added services outpaced overall growth, with an 18% revenue increase, while operating margins expanded to 59.3%, driving EPS growth of 16%. With $12 billion in new share buyback authorization and annual free cash flow exceeding $12 billion, Mastercard continues to deliver robust shareholder returns.
Looking ahead, Mastercard’s guidance projects mid-double-digit revenue growth and mid-teens EPS growth through 2027, supported by its strong business model, cash generation, and strategic positioning. For long-term investors, Mastercard represents a premier investment opportunity in a cash-flow-rich, high-moat business poised for sustained growth.
Mastercard Incorporated (NYSE:MA) is on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 131 hedge fund portfolios held MA at the end of the third quarter which was 142 in the previous quarter. While we acknowledge the risk and potential of MA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.