(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of V, MA)
Visa Inc.'s (V) stock has increased by almost 29% in 2018, which is nearly triple the pace of the S&P 500. Shares of the fintech company may climb even higher over the coming months, by another 12% based on technical analysis. Additionally, analysts see shares rising too, by another 8%. (For more, see also: Why Visa's Stock May Rise 14% in 2018.)
The company delivered better than expected second-quarter results. Earnings beat analysts’ estimates by 10%, while revenue beat estimates by almost 3%. The strong results come as the payment processor benefits from its enviable position at the heart of the e-commerce ecosystem.
The technical chart shows Visa's stock breaking out, recently rising above technical resistance at $145. The breakout may fuel a rise of more than 12% to almost $161. The relative strength index (RSI) has also been trending higher since mid-March. The rising RSI suggests bullish momentum is moving into the stock.
Meanwhile, analysts have an average price target on the stock at $159.12. That is more than 8% higher than the current price of $146.39. It is an increase of more than 24% since the start of the year.
The average price target on the stock has been rising on the heels of strong earnings and revenue growth, prompting analysts to boost their future estimates. Earnings forecasts have increased by more than 11% since January and are forecast to climb by 32% to $4.59 per share in 2018. Earnings estimates for 2019 and 2020 have also increased by more than 11% and are forecast to grow by more than 16% in each year. (For more, see also: Visa's Breakout May Boost Stock by 10%.)
With earnings expected to see substantial growth in 2018, the stock is trading at 32 times 2018 earnings estimates. When adjusting the stock for its earnings growth, the PEG ratio is 1, meaning its earnings growth rate equals its PE ratio. Its P/E ratio is also the cheapest when compared to MasterCard Inc. (MA), PayPal Holdings Inc. (PYPL) and Square Inc. (SQ).
Visa finds itself very well positioned to continue to grow in the future. The usage of the digital currency is not only becoming more accessible and more convenient but also a necessity for e-commerce transactions. Should the strong growth trends continue, resulting in even more substantial profits, then the stock may continue to rise over the long term.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.