Mastercard (MA 1.50%) is an industry-leading payment processor that is growing strongly as cash is replaced by cards. The shares have been rising strongly, more than doubling during the past five years. There's just one problem: Mastercard hasn't been a cheap stock to buy. But, after the 4% decline during the past month, has that changed?
Mastercard is doing well
While classified as a finance company, Mastercard basically provides the technology behind the transaction when you use a Mastercard credit or debit card. It collects a small fee every time someone uses a card. Although one single transaction isn't a big deal, when you add up all of the transactions the company processes, connecting buyers and sellers, you get very big numbers.
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In 2024, Mastercard processed $9.8 trillion worth of transactions, an 11% increase over 2023. In 2023, transaction value increased 10%. And in 2022, the value of transactions increased 12%. These are impressive growth numbers, and it highlights why investors like Mastercard stock.
A recession would likely dent the company's transaction volume, but credit cards are so commonly used today that it would likely be a temporary blip. And the drop would, perhaps, not be as large as it would have been a decade ago. Simply put, Mastercard has an attractive business and plenty of growth potential as cash use continues to decline and online payments increase.
A good stock isn't always a good investment
The problem, of course, comes back to one of Benjamin Graham's maxims. (He helped train Warren Buffett and is often considered the father of fundamental analysis.) A good company can be a bad investment if you pay too much for it. So what are investors paying for Mastercard today, after the stock price pullback? The answer is actually a bit mixed.
MA PE Ratio data by YCharts
Using two of the most common valuation metrics, price-to-earnings (P/E) and price-to-book (P/B) value, highlights the problem. Mastercard's P/E ratio of about 40 is in line with its five-year average. That suggests a fair price. However, the P/B ratio of about 78 is notably above its five-year average. That suggests an expensive stock. These two metrics, however, do tell investors one thing: Mastercard is not cheap. At best, it is fairly priced.
NYSE: MA
Key Data Points
The price pullback hasn't created a compelling "buy" moment for Mastercard stock. Things get even more interesting when you compare Mastercard's P/E and P/B to the S&P 500 index (^GSPC 0.55%). Mastercard's P/E is about 40x while the index's P/E is a touch over 28. The numbers for P/B are 78 for Mastercard versus 2.3, respectively. Based on this comparison, it still looks like Mastercard is still trading at a premium price.
Probably not worth it for most investors
If you are a growth investor, Mastercard does look more attractive than it was before the sell-off. And that might be a reason to buy it if you have a long investment time frame. However, it would be hard to suggest that Mastercard is a screaming buy today. That's not a knock against Mastercard, which is continuing to operate at the top of its game. But it seems pretty clear Wall Street is aware of how well Mastercard is managed.
