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Long only, value, growth, dividend investing
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Summary

  • That's the phrase I like to use as I'm playing bridge with the buddies and I know the cards in my hands are winners; that's how I feel about MasterCard.
  • The credit services company sports top of the line financial efficiency ratios.
  • Analysts have high earnings growth expectations of the company for the near- and long-term.

That's the phrase I like to say as I'm playing bridge with the buddies and I know the cards in my hands are winners; that's how I feel about MasterCard. MasterCard Incorporated (NYSE:MA) is a technology company in the global payments industry. On 01May14, the company reported first quarter earnings of $0.73 per share, which beat the consensus analysts' estimates by $0.01. In the past year, the company's stock is up 33.9% excluding dividends (up 34.37% including dividends) and is beating the S&P 500, which has gained 18% in the same time frame. I just initiated my position today. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to show that today was a good time to purchase the stock for my growth portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 28.6, which is fairly 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 21.21 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.47), 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 fairly priced based on a 1-year EPS growth rate of 19.48%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 19.48%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 16.94%.

Financials

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 0.58% with a payout ratio of 16% of trailing 12-month earnings while sporting return on assets, equity and investment values of 23.5%, 44.8% and 41.7%, 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 0.58% yield of this company is good enough for me to take shelter in for the time being.

The really high return on assets value (23.5%) is important because it is a measure of how profitable the company is relative to its assets, telling us how efficient a management team is at using its assets to generate earnings [for comparison purposes, MasterCard has the highest ROA of all companies in the credit services industry followed by Visa (NYSE:V), which sports an ROA of 14.9%, and Qiwi plc (NASDAQ:QIWI), which sports an ROA of 14.1%].

The really high return on equity value (44.8%) is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry [for comparison purposes, MasterCard has the third highest ROE of all companies in the credit services industry behind Qiwi, which sports an ROE of 77.0%, and Western Union Co. (NYSE:WU), which sports an ROE of 76.1%].

The really high return on investment value (41.7%) is an important financial metric because it evaluates the efficiency of an investment that a company makes and if an investment doesn't have a positive ROI then the investment should not be made (for comparison purposes, MasterCard has the highest ROI of all companies in the credit services industry followed by Qiwi, which sports an ROI of 30.3%, and Blackhawk Network Holdings, Inc. (NASDAQ:HAWK), which sports an ROI of 24.1%).

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock in middle-ground territory with a current value of 57.08. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($76.35), I'm looking at $78.72 to act as resistance and $75.62 to act as support for a risk/reward ratio, which plays out to be -0.96% to 3.1%.

Recent News

  1. The company has decided that it will remain in Russia despite a new law that is increasing the company's security deposits to 25% of their average daily turnover. The new law was more than likely passed as a form of retaliation for the proposed sanctions on Russia from the U.S.
  2. The company recently acquired an Indian software company, ElectraCard Services Private for an undisclosed amount. MasterCard already had a minority position in the target company which specialized in offering software and service to banks and retailers.
  3. On 01May14 the company reported first quarter earnings of $0.73 per share on revenue of $2.17 billion versus expectations of $0.72 per share and $2.14 billion. The results topped expectations due to 14% higher gross dollar volume and 14% increase year over year in processed transactions

Conclusion

The quarter was great and was contradictory to Visa, hence the reason for purchasing it in my growth portfolio. However, I'd love to see the dividend at least in the 2% range, the free cash flow and the earnings can definitely support it. Fundamentally, the company is fairly priced based on next year's earnings estimate and on future growth potential. Financially, it has top of the line financial efficiency ratios but practically no dividend. On a technical basis, the reward outweighs the risk right now. Due to the high earnings growth expectations, lovely financial efficiency ratios, and the decent reward/risk ratio, I felt it was time to purchase my first batch in the stock today.

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!

Source: MasterCard: This Card Is A Master!