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Overview

I've seen several articles in the past couple of months that discuss Visa, Inc. (NYSE:V), with the majority of them considering the stock a buy due to prior growth, undervaluation, dividend growth potential, etc. While I didn't disagree with the sentiment that Visa is a stock that should be considered as a potential buy, I began to wonder if it was the best stock to buy in the credit services industry.

In this article I will be comparing Visa with the other top four companies in the credit services industry (by market cap). Those companies are MasterCard (NYSE:MA), American Express (NYSE:AXP), Capital One Financial (NYSE:COF), and Discover Financial (NYSE:DFS).

CompanyMarket Cap
Visa172.08B
MasterCard100.01B
American Express96.14B
Capital One Financial44.59B
Discover Financial26.26B

In determining whether or not Visa is the best credit services stock to buy, I will be looking at the company's financial performance, current valuation, recent trading activity, dividend policy, earnings and future outlook while comparing those areas to Visa's main competitors (MasterCard, American Express, Capital One Financial, and Discover Financial).

Financial Performance

Gross Profit Margin(Quarterly)79.11%
Profit Margin (Quarterly)40.09%
Return on Assets (NYSE:TTM)13.67%
Return on Equity18.31%
Revenue$11.78B
Revenue (Quarterly YOY Growth)8.86%

Looking at the chart below, you can see that Visa is the leader in revenue growth over the past five years (just barely ahead of Capital One, while significantly better than American Express and Discover).

V Revenue (<a href=

V Revenue (TTM) data by YCharts

When looking at net income, you can see that while Visa is at the bottom in terms of growth over the past several years, it is comparable to each of the other competitors with the exception of Capital One Financial which has performed more than twice as well over the same time period.

V Net Income (<a href=

V Net Income (TTM) data by YCharts

Current Valuation and Trading Activity

Visa closed Tuesday at $231.93, which is just 33 cents lower than its 52-week high and is $77.79 higher than its 52-week low. It is trading above both its 50-day moving average of $214.44 and its 200-day moving average of $195.82.

The stock has a PE ratio of 30.57x and a price to book value of 6.71x. Looking at the chart below, you can see that Visa has the second highest PE ratio of the group, with Capital One Financial containing the lowest PE at 10.42.

V PE Ratio (<a href=

V PE Ratio (TTM) data by YCharts

Visa has seen the following price returns:

1 Month Price Return8.68%
1 Year Price Return44.96%
3 Year Price Return225.90%

Compared to its competitors, Visa has seen the second highest price return over the past 3 years with only MasterCard having a better 3 year price return.

V 3 Year Price Returns Chart

V 3 Year Price Returns data by YCharts

Dividend

Visa currently pays a $0.40 quarterly dividend that yields 0.69%. It has the second lowest yield out of the five stocks in this article, while Capital One has the highest current yield at 1.66%.

V Dividend Yield (<a href=

V Dividend Yield (TTM) data by YCharts

Earnings

For its latest quarter, Visa reported earnings per share of $1.85. This was in line with estimates and $0.31 higher than the same period last year.

When compared to its competitors, Visa's EPS looks impressive.

V EPS Basic (<a href=

V EPS Basic (TTM) data by YCharts

But when looking strictly at growth, Visa's EPS isn't quite as impressive as the company has the second lowest growth within the group.

V EPS Basic (<a href=

V EPS Basic (TTM) data by YCharts

Future Outlook

At the end of the month, Visa will release its latest earnings report. Analyst estimates suggest the company will report earnings per share of $2.16, a $0.23 increase over the same period last year. The company's short term outlook looks good as Visa has been able to see strong revenue growth, maintain strong debt levels, and increase its cash flow.

Conclusion

While I believe that Visa is a stock worth considering as a buy, if I had to pick just one stock in the credit services sector it would have to be Capital One Financial. Even though the stock hasn't performed as well over the past three years, I think that will change in the future, and I fully expect it to be one of the best performing stocks in this sector over the next several years. Considering Capital One Financial has nearly matched Visa's revenue growth, while surpassing Visa in terms of earning's growth, dividend yield, and net income, I believe it is the credit services stock to buy. The stock's recent price drop due to a fairly weak earnings report has created a great buying opportunity at a very attractive PE ratio.

As always, I suggest individual investors perform their own research before making any investment decisions.

Source: Visa: Is It The Best Long-Term Stock In The Credit Services Sector?