Is Mastercard a Buy Now?
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Mastercard (NYSE: MA) is a company that flies under-the-radar although most of us use its products frequently (I do and I love the cash-back rewards!). For those that don’t, they simply provide transaction processing and related credit services used predominately with credit cards. Therefore, whenever you buy your next latte, iPhone, or Motley Fool subscription with a Mastercard, MA gets a slice of the pie. It is a beautiful business model acting in many ways like a bridge toll and the company has been immensely profitable as a result. Over the past twelve months alone, the company generated a nice $6.5B in revenue and $2.3B in net income while generating approximately $2.5B in FCF. So this begs the question as MA sits at approximately $350/share if we should step in and buy? Let’s take a look.
As we mentioned above the company has a glowing business model, yet it still trades at reasonable valuations. At a 19.5x trailing P/E, 16x forward P/E, and 1x PEG MA isn’t grossly overpriced. Moreover, when one looks at the sterling balance sheet with no debt and approximately $35/share in net cash, that essentially brings down its respective valuations 10% to a 17.6x trailing P/E and 14.4x forward P/E making it even more enticing. Add in the fantastic operating margins in excess of 52%, profit margin of approximately 36%, and return of equity at 42% and I believe MA is still poised to move higher in the coming years.
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