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How Long Will Visa's Slump Last?

Feb. 01, 2019 9:02 AM ETVisa Inc. (V)48 Comments
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Wealth Insights


  • Visa's stock has been in a slump since hitting highs in October. The slump is due to increased volatility, not a change in Visa's fundamentals.
  • Visa remains dominant in its industry, continues to generate loads of cash, and is poised to continue growing thanks to an increasingly digital world, and strategic moves in international markets.
  • The current valuation is 16% below historical norms, and free cash flow yield is near five-year highs. It's a great time to accumulate shares for a long-term investment.

Payment services and technology company Visa Inc. (NYSE:V) has been in an extended slump since the fall, which is a rarity for a stock with a sterling reputation as a growth stock (average earnings multiple of 30X over the past decade). Since hitting a high of $151 per share in October, the stock has drifted lower. In the past four months, Visa has traded as low as $121, and currently sits about 11% from its October levels at $133 per share.

Source: Ycharts

Why the decline? The answer can touch on a number of influences, but the most obvious answer is simply market volatility. A number of stressors have emerged over the past four months such as continued trade tensions with China, and the tension in Washington surrounding border wall politics. We can see in the chart below that the tension has moved the VIX higher (which measures expected market volatility), and the S&P 500 has felt the impact as well.

Source: Ycharts

Visa's high valuation (sometimes exceeding 35X earnings) resulting from its strong growth makes the stock vulnerable to both internal and external disruptions. In other words, a high valuation "sets the bar high," so even small factors - whether via the overall market (external), or Visa's business performance (internal) - can result in a price correction.

Whenever something like this happens, we as investors need to investigate whether the downward catalyst relates to the fundamentals of the business or not. To do this, we review Visa's fundamentals.

Source: Ycharts

Visa has shown a steady trend of expanding its margins and increasing its FCF conversion rate over the past decade. While operating margin has slightly dropped off over the past year or so, the levels that Visa operates at are still very strong. The ability for Visa to convert more than $0.58 of

This article was written by

Wealth Insights profile picture
I provide straight forward insights on stocks and markets using fundamental analysis and common sense. - Bachelor's degree in Business Administration with a concentration in Financial Analysis. Been investing and following the markets for more than a decade.- Wealth Insights is an investor, and investment author. His content is not geared to anyone's specific investment goals, time horizons, or risk tolerance. Content is for illustrative purposes only, and is not intended to displace advice from a fee based financial adviser. It is not to be taken as investment advice, or influence investor decision making. Accuracy of data is not guaranteed.

Analyst’s Disclosure: I am/we are long V. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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