- If you are wondering whether Visa's current share price still offers value, the recent mix of shorter term weakness and longer term gains makes it a stock that is hard to ignore.
- Visa closed at US$326.48, with the share price down 1.0% over the last week, up 5.5% over the last month, yet down 5.8% year to date and down 8.4% over the last year, while still up 50.7% over three years and 49.5% over five years.
- Recent headlines around payments, regulation and competition have kept Visa in focus, as investors reassess how much they are willing to pay for exposure to global transaction volumes. These themes help explain why the stock has seen both pullbacks and recoveries over shorter periods, even as the longer term track record has remained positive.
- Visa currently has a value score of 2 out of 6. It is only screening as undervalued on a couple of checks. The rest of this article will walk through the main valuation methods used to assess the stock and highlight a more holistic way to think about valuation at the end.
Visa scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
Approach 1: Visa Excess Returns Analysis
The Excess Returns model asks a simple question: after covering the required return for shareholders, how much profit does Visa generate on each dollar of equity, and what is that stream of surplus worth today?
For Visa, book value is $18.64 per share and the stable earnings per share estimate is $14.80, based on weighted Return on Equity estimates from 9 analysts. The average Return on Equity sits at 68.84%, while the estimated cost of equity is $1.56 per share. That leaves an excess return of $13.24 per share, which is the profit attributed to Visa earning more than the minimum return investors are assumed to require.
The model also uses a stable book value estimate of $21.49 per share, again drawn from analyst projections, to extend those excess returns into the future and discount them back to today. This produces an intrinsic value estimate of about $377 per share. Compared with the recent price around $326, the Excess Returns model suggests Visa is about 13.4% undervalued.
Result: UNDERVALUED
Our Excess Returns analysis suggests Visa is undervalued by 13.4%. Track this in your watchlist or portfolio, or discover 46 more high quality undervalued stocks.
Approach 2: Visa Price vs Earnings
For a profitable company like Visa, the P/E ratio is a useful yardstick because it links what you pay per share to the earnings the business is currently generating. Investors usually accept a higher or lower P/E depending on what they expect for future earnings growth and how much risk they see in those earnings.
Visa trades on a P/E of 27.92x. This sits above the Diversified Financial industry average P/E of 17.90x and also above the peer average of 23.99x. This tells you the stock currently carries a higher earnings multiple than many comparable companies.
Simply Wall St’s Fair Ratio for Visa is 20.92x. This proprietary metric estimates the P/E you might expect given factors such as the company’s earnings growth profile, industry, profit margins, market cap and key risks. Because it blends these drivers, the Fair Ratio can be a more tailored reference point than a simple comparison with industry or peer averages, which do not adjust for company specific characteristics.
Comparing Visa’s actual P/E of 27.92x with the Fair Ratio of 20.92x suggests the stock is trading at a richer multiple than the model indicates.
Result: OVERVALUED
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Upgrade Your Decision Making: Choose your Visa Narrative
Earlier it was mentioned that there is an even better way to think about valuation, so Narratives are introduced, which let you attach a clear story about Visa’s business to your own numbers for fair value, revenue, earnings and margins, then connect that story to a financial forecast and a fair value you can compare directly with today’s price.
On Simply Wall St’s Community page, Narratives are built and shared by millions of investors and are kept up to date as fresh news, earnings and forecasts arrive, so you are not just looking at static models. You are seeing living views that adjust as Visa’s situation changes.
For Visa, some Narratives on the platform lean cautious, such as one that applies a fair value of about US$170 per share with more conservative growth and margin assumptions. Others are more optimistic, with fair values around US$463 or US$495 per share based on higher growth and richer future P/E assumptions. This spread helps you see where your own view sits on that spectrum.
For Visa, however, we will make it really easy for you with previews of two leading Visa Narratives:
Together they show how different assumptions on growth, margins and future P/E can lead to very different views on what the stock is worth, even when everyone is looking at the same company.
Fair value in this bullish narrative is set at about US$398.74 per share.
At the recent price of US$326.48, that works out to the stock trading about 18.1% below this fair value estimate.
Revenue growth is modeled at about 10.98% a year.
- Focuses on secular shifts to digital payments and e commerce, plus emerging market adoption, as key drivers for higher transaction volumes.
- Assumes value added services and cross border solutions steadily increase the share of higher margin revenue.
- Builds in consensus assumptions for rising profit margins, lower discount rate and a future P/E of 27.6x, which together support a fair value above the current price.
Fair value in this more cautious narrative is set at about US$284.00 per share.
At the recent price of US$326.48, that works out to the stock trading about 13.0% above this fair value estimate.
Revenue growth is modeled at about 11.5% a year.
- Accepts Visa as a high margin, high market share business but questions how much the older growth drivers can keep contributing.
- Leans on inflation, product tweaks and ongoing scale benefits to support earnings, while flagging regulation, competition and local networks as real risks.
- Uses robust growth and margin assumptions but applies a tighter view on what multiple investors may be willing to pay, which pulls the fair value below the current share price.
Viewed together, these Narratives give you a clear range of outcomes to weigh against your own expectations for Visa’s growth, profitability and valuation multiples over the next few years.
If you want to see how other investors are joining the dots between Visa’s business drivers and fair value estimates, it is worth scanning the wider set of community Narratives before making any decisions about the stock.
To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Visa on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.
Do you think there's more to the story for Visa? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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