Why You Should Purchase Visa Right Now

Visa (NYSE: V) published their Q2 Earnings on the 4th of April. The market was pleased with Visa's 6.55% increase in revenue with a 3% single-day gain. Investors may question if it is too late to purchase V and if Visa would be able to sustain such growth midst COVID-19. The following are reasons why you should buy V right now midst the COVID-19 pandemic. 

Shielded From Lending Risk:

Visa, unlike competitors American Express (NYSE: AXP), Discover (NYSE: DFS), and Square (NYSE: SQ), does not act as a credit lender. This would prove valuable during an economic downturn. Since during recessions, such as the one we are in, credit card delinquencies rise dramatically. Visa, however, does not have any exposure to these industries shielding them from lending risk. 

Future Growth:

Visa is currently trading at a price to earnings ratio (P/E) of 33.53. It is still comparatively cheap as opposed to other fintech companies and edges out Mastercard's P/E ratio of 36.63. It looks even less expensive when comparing its Price to Earnings to Growth (PEG) ratio of 2.15 to other fintech companies with such performance. Given the high-profit margins and 17.81 percent year-over-year earnings-per-share expansion, the valuation of Visa seems very reasonable. Visa is a dominant force, holding nearly 60% market share for payment processors in the U.S. Moreover, 85% of transactions still occur using cash that and the swift transition towards cashless payment globally, further providing Visa with opportunity for growth. Visa also holds investments in various fintech companies such as Square Inc, providing them with the ability to produce inorganic growth. Visa has differed its No Card Present (NCP) payment fee hike to Q3 of 2020. It is expected to see an increase in V's price, as seen in other years after similar fee hikes took place. 

Geographically Diversified:

In addition to being shielded from lending risk, Visa is shielded from drops in transactions from a distinct country or region. This protection is due to Visa having operations in more than 200 countries. Thus, despite a dramatic reduction in the volume of transactions in a specific area, Visa would be able to mitigate this through global transactions.

Margins and Cash Flow:

As of the 31st of December 2019, Visa has an operating margin of 53.52%. Visa's margin is about 85% more than the industry standard for credit services. Visa's margins translate into increased free cash flow (FCF), which is crucial during economic slowdowns. Visa regularly uses its FCF for raised dividends, stock buybacks, and to acquire or invest in other businesses to provide Visa with inorganic growth. All of which contribute to shareholder value. Year to date, Visa has spent 5.553 billion on stock buybacks. Such programs can significantly increase EPS and, in turn, drives up the stock price.

Consistency:

Although Visa's prior performance is no guarantee of the future, Visa has had steady, substantial growth in the past years, and it seems to continue despite COVID-19, as seen with a 6.55% increase in revenue. Furthermore, V's dividends have been consistently growing from $0.0263 a share per quarter in 2008, when first introduced, to $0.30 in the second quarter in 2020.

Conclusion:

In conclusion, while the majority of retail investors may have missed out on purchasing V during late March when it was trading in the $135 to $145 range, it is still trading for well below its $210 high in February. Thus, it is still advisable for investors to purchase V so as to cash in Visa's growth both in the short term and in the long run.