Where will Mastercard stocks be in 5 years?

In the last five years, MasterCard (ME 0.53%) the stock generated a total return of 77%. This is a respectable gain, but lags behind the total return of 113%. S&P 500. Zoom out even further, however, and you’ll see that Mastercard has outperformed the market. It has risen 11,180% since its initial public offering in May 2006 (compared to 534% for the S&P 500).

So, the past five years have underperformed, but the stock is still a long-term performer. It’s no wonder some investors are wary, while others may have their eyes on this stock. But everyone is wondering where this stock will be be in the next five years. Will his performance mimic the last five years or the last 18? Let’s see if we can find an answer.

May Mastercard’s momentum continue

When you compare Mastercard to other fintech stocks, you might get the impression that it’s a relatively boring company that just hums along with no significant changes to its operations from year to year. This consistency, however, is one of its positive traits.

Mastercard is performing well as a company – probably so much so that investors take it for granted. In the last five years, its income and diluted earnings per share rose to annualized rates of 11.3% and 11.8%, respectively. Those earnings ratios, while solid, help explain in part why the stock has underperformed the overall market. It also didn’t help that the stock’s price-to-earnings (P/E) ratio fell 15% over that period.

However, the growth of cashless transactions continues to propel the business and will continue to do so in the future. Compared to cash, using credit and debit cards tends to be safer and more convenient for all parties involved. Even in the US, a developed country where the credit industry has wide penetration, there is ample potential for growth. The share of US consumers who don’t use cash for any of their purchases was 41% in 2022, up from 24% in 2015. Clearly, there’s still a way to go, and Mastercard could benefit.

Mastercard handled $2.4 trillion in payment volume in the second quarter. This figure is up 50% from five years ago. With estimates pointing to more than 6% annual growth in global credit card spending between now and 2029, it’s a good bet to say that Mastercard will be handling significantly higher volume towards the end of the decade.

Although processing payment transactions will continue to be the biggest moneymaker, Mastercard is finding success in offering value-added services. Things like data analytics, fraud prevention and cybersecurity solutions, which saw sales grow 18% last quarter (faster than the overall business), could contribute more to the company’s financial performance going forward.

Investors should think about valuation

Mastercard probably has one of the widest competitive moats in the world. His position is strongly supported network effects. Billions of its cards are in use worldwide, and those cards are accepted at more than 100 million merchant locations. This broad coverage is incredibly valuable to all stakeholders.

Investors will also struggle to find more profitable companies than this one. Over the past decade, Mastercard’s operating margin has averaged 55%. There are not many businesses that exhibit this kind of financial prowess, which is directly attributable to its huge size and high profitability. This results in tremendous free cash flow generation, which is used (in part) to pay dividends and buy back shares.

Mastercard stock doesn’t look cheap at first glance. They trade at a P/E ratio of 36.6, which is more than the rival Visa. But Mastercard’s valuation is in line with the 10-year average. Potential investors may find this reasonable.

All other things being equal, a lower P/E ratio is a desirable attribute when considering stocks to buy because it adds potential upside to an investment. But in this case, Mastercard is such a high-quality business — arguably one of the best businesses in the world — that investors who can deprioritize the valuation may find the stock a smart buy today.

Mastercard has underperformed the S&P 500 over the past five years. I have no idea if this trend will continue into 2029. But what I do know is that adding these stocks to your portfolio will bring peace of mind knowing that you own a competitively-advantaged, highly profitable business that has a lasting duration. growth track before it. If valuation is a concern, perhaps dollar cost averaging is the best approach to buy stocks at various entry points.