Visa Inc (V), Mastercard Inc (MA) & American Express Company (AXP): Is There Any Upside Left in Credit Cards?

Historic comparisons

While it is impossible to put a definitive valuation on Visa Inc (NYSE:V), it is possible to gauge if the company is overvalued or undervalued based on historic valuations. So, based on the company’s EV/Revenue figures over the past five years,

it would appear as if Visa is overvalued based on its historic EV/EBITDA ratio. Indeed, over the past five years the company has traded at an average ratio of 11.7. Visa currently trades at a EV/EBITDA ratio of 18.3, which is far above its historic average and makes the company look expensive.

What about the others?

If Visa is expensive, what compelling investment reasons do the other two companies have? Well, American Express Company (NYSE:AXP) offers investors a 1.3% dividend yield, not much but twice the size of Visa Inc (NYSE:V)’s. American Express is also buying back stock to return additional cash to shareholders. The company, according to the valuations above, is also one of the cheapest in the credit services sector.

Meanwhile, Mastercard Inc (NYSE:MA) only offers a 0.4% dividend yield, but the company does have a $1.7 billion share repurchase program in action and a very strong balance sheet with no debt and around $5 billion of cash — 74% of shareholder equity. Moreover, it would appear as if MasterCard is expanding rapidly in the fast growing African market, and its recent deal with the Nigerian government should be extremely lucrative.

Foolish summary

All in all, it would appear as if Visa is currently overvalued based on historic valuations and in comparison to the rest of the sector, in my opinion, limiting the stocks upside. Mastercard Inc (NYSE:MA) and American Express Company (NYSE:AXP), however, both look cheaper based on sector valuations and offer the potential for further upside.

The article Is There Any Upside Left in Credit Cards? originally appeared on Fool.com and is written by Rupert Hargreaves.

Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool recommends American Express, MasterCard, and Visa Inc (NYSE:V). The Motley Fool owns shares of Mastercard Inc (NYSE:MA). Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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