The last time I wrote about Visa Inc. (V) I did not buy a position in it stating "…I like to see how earnings shake out before evaluating again." Since the last article it is only up 2.2% versus the 3.52% gain the S&P500 (SPY) posted. Visa is a global payments and technology company that connects consumers, financial institutions, and merchants. On October 30, 2013, the company reported third quarter earnings of $1.85 per share, which was in-line with the consensus of analysts' estimates. In the past year the company's stock is up 38.04% excluding dividends (up 38.61% including dividends), and is beating the S&P 500, which has gained 28.55% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying more shares of the company right now for the financial sector of my growth portfolio.
The company currently trades at a trailing 12-month P/E ratio of 37.67, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 19.43 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (2.18), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 17.28%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 17.28%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 18.62%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 0.79% with a payout ratio of 30% of trailing 12-month earnings (or 74% of free cash flow) while sporting return on assets, equity and investment values of 14%, 18.4% and 18.5%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 0.79% yield of this company is good enough for me to take shelter in for the time being.
Looking first at the relative strength index chart [RSI] at the top, I see the stock in middle ground territory with a value of 60.61 with upward trajectory, which is a bullish pattern. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next and see that the black line just crossed above the red line with the divergence bars increasing in height to the upside, indicating another bullish pattern. As for the stock price itself ($203.52), I'm looking at $207.49 to act as resistance and the 50-day simple moving average (currently at $196.21) to act as support for a risk/reward ratio, which plays out to be -3.59% to 1.95%.
- On 30Oct13 the company reported third quarter earnings of $1.85 per share on revenue of 3.02 billion versus expectations of $1.85 per share on revenue of $3.04 billion. The stock price was hit hard on the revenue miss even in the midst of announcing a $5 billion share buyback.
- With all the online gambling hoopla going on, the company stated that it will be allowing the transaction in states where online gambling is legal, but the card issuers ultimately have the final say. This could be big for the company as it can potentially bring in lots of revenue.
Visa is fairly valued based on future earnings and expensive on growth. The technical situation of how the stock is currently trading is telling me we might be seeing some upward pressure for now. The stock has a fair valuation on earnings, low dividend yield, and is expensive on earnings growth potential; it's for these reasons I'm not going to be buying right now. Right now I'm positive on my position (+10.18%) and I will continue to hold onto the shares I have, reinvesting the dividends.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!