Visa (NYSE:V) processes transactions between consumers, sellers and banks. In Q3 2013, Visa reported earnings of $1.88 per share. These earnings beat analyst expectations by 3.86 %, or 7 cents. Visa stock beat the S&P 500 index, with visa gaining 42.67 % before counting dividends. By contrast, the S&P 500 only increased by 17.07 %. Given these facts, it is prudent to wonder if Visa is a good investment. A fundamental, technical and financial set of perspectives will help to understand if Visa will continue to reward shareholders in the next several years.
Visa stock has a 12-month P/E ratio of 31.91 and a forward-looking 1-year P/E of 20.78. Despite being on the high end, other fundamental and technical data indicate that these P/E values fairly reflect the company's value to investors. Considering Visa as a growth stock, these price-to-earning numbers hint at institutional investors' confidence in Visa's continued success. Visa's TTM earnings were $5.80, contrasting with next year's estimated earnings of $8.90/share. Though a PEG ratio of 1.84 is a bit high, when combined with a 1-year EPS growth rate of 17.27 %, Visa's financial fundamentals hint at substantial earnings growth in the near future. When it comes to financial stocks such as Visa, 1-year and 5-year earnings growth percentages greater than 15 are indicative of substantial upside potential without too much risk.
Dividends are an important indicator of a company's financial health. Currently, Visa stock has dividend yield of 0.71 percent. This equates to:
*payout ratio of 22 percent with respect to TTM earnings
*97 percent of annual cash flow
Returns on investment, equity and assets are also important financial metrics. At the close of Q3 2013, Visa performed as follows:
*14.9 percent ROA
*20 percent ROE
*7.5 percent ROI
Regarding chart indicators, the relative strength index (RSI) identifies recent Visa movements as descending from overbought values. Currently the RSI index for Visa stock is at 82.42 and decreasing. To confirm the apparent bearish movement, the moving average convergence-divergence (MACD) shows that divergence between the two moving averages is decreasing. Generally, small or nonexistent MACD divergence bars hint at substantial momentum. For a precise technical prediction, V stock will oscillate between the 50-day moving average and a price level of $189.73. The moving average will act as a support and the flat $189.72 as a resistance ceiling in the near term.
*VISA CFO Bryon Pollitt announced that company executives will sell 63,748 shares of Visa common stock before November 2014.
*The Federal government and Visa are involved in a court case involving swipe fees for debit cards.
*Visa recently became a member of the Dow Jones Industrial index.
The stock sale will allow upper management to exercise stock options and raise some additional capital for Visa. Membership in the DJIA confers the company with "elite" status. DJIA members are considered critical leaders in their sectors. Regarding the court case: debit card swipe fees are more profitable for Visa than similar fees on American Express (NYSE:AXP) or MasterCard (NYSE:MA) credit cards. Further details about this case can be found on CBS Money Watch, "Court Strikes Fed Cap on Debit Card Swipe Fees.
Considering expected growth of 17.27 percent in the next year, Visa is on solid footing. The company has relatively little short or long-term debt and TTM dividend-to-earnings ratio is low. These facts hint at more upside not just in capital gains but also dividend growth.
However, the near future will see Visa stock sinking lower. The market for liquid, high-volume stocks such as Visa becomes more and more driven by technical trends on shorter time frames. This is why, despite solid fundamentals, technical trends will likely depress Visa stock prices in the near term.
Nevertheless, bear in mind that bullish long-term factors in favor of Visa include:
•17.27 percent growth in the next 12 months
•Likely double-digit growth rate in dividends
•Court ruling in favor of Visa that eliminates caps on profitable debit card swipe fees
In the short term, Visa stocks merit a hold recommendation. Dividend reinvestment should continue. However, any large buy decisions with outside capital should wait until October. September is usually a turbulent month for stocks. As September progresses, there may be better entry points for a long position on Visa stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.