(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his client's own shares of V, MA.)

Visa Inc.'s (V) stock has soared by more than 24% in 2018, easily outpacing the S&P 500 return of just 4%. However, the shares of the fintech plunged by as much as 11% since the beginning of October as rising interest rate fears sweep across the broader stock market. Some traders do not see the stock's pullback lasting and are betting that the shares recoup most of those losses by the middle of November, rising by 7%. 

One reason for the optimism is that analysts expect the company to deliver very robust fiscal fourth-quarter results on October 24 after the close of trading. The company has been a big beneficiary of the stronger U.S. and e-commerce economy.

V Chart

V data by YCharts

Betting on a Rebound

The options expiring on November 16 have seen a rising level of open interest in the $150 calls. Since October 10, the number of calls has more than quadrupled to 23,000 open contracts. A buyer of those calls would need the stock price to rise to around $150.90 from the current price of $141.90

Strong Growth Forecast

Analysts see the company delivering fiscal fourth-quarter earnings growth of 33% to $1.20 per share on revenue growth of 12% to $5.4 billion. Those estimates have been rising since the company last reported results in July. 

Analysts are looking for growth to continue in fiscal 2019 and 2020, with earnings expected to grow by 16% each year. Revenue growth is expected to continue at a healthy pace, climbing by 11% for both years. Those estimates have been rising throughout 2018. 

V Annual Revenue Estimates Chart

V Annual Revenue Estimates data by YCharts

Cheapest of the Bunch

Given the stock's strong growth forecast and recent pullback, Visa is now trading at a 2019 PE ratio of 22.5. That is near the lower end of its historical range since 2014 of 17 to 28. It is also the cheapest among the other payment processor stocks, Mastercard Inc. (MA) and PayPal Holdings Inc. (PYPL).

Fundamental Chart Chart

Fundamental Chart data by YCharts

Visa finds itself in a strong position to continue growing well into the future given the rise of digital transactions. When you layer on the need for Visa's services at the center of the e-commerce ecosystem, it would seem that the company has plenty of years of growth left. But for the share price to continue to rise it also means that earnings and revenue will need to grow at a pace fast enough to satisfy investor expectations.

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 holdingsInformation 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.

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