Mastercard Inc. is an American multinational financial services corporation that provides financial services around the world. Mastercard’s longevity and legacy as a financial services corporation makes it an attractive investment opportunity.
With many investors asking if they should be investing in Mastercard, we have taken a detailed look at the company and the investment opportunity.
What is Mastercard?
Mastercard’s primary business function is to process payments between the banks of merchants and the card-issuing banks or credit unions of the purchasers who use the "Mastercard" brand debit, credit and prepaid cards to make purchases.
Starting life as Interbank in 1966 the company changed its name to Master Charge in 1969 and then finally to Mastercard ten years later in 1979. Before going public in May 2006, selling 95.5 million shares at $39 each, Mastercard was a co-operative that was owned by more than 25,000 financial institutions that issued its branded cards.
Financial and metrics
Traded on the NYSE since May 2006, Mastercard (NYSE: MA) stock currently trades at a share price of $320 per share, a long way from its opening price of $39 back in 2006 but a dip on its $369 per share price in November 2021.
In December 2021, Mastercard stock fell by around 6.9%. This drop was due to the fear of a decline in consumer activity owing to the reintroduction of lockdown restrictions across Europe as well as the news of a new Coronavirus variant in South Africa.
Mastercard is the second largest electronic payment solutions company in the world, it has a market capitalization of 343.22B USD, a P/E Ratio of 42.95 and a current dividend yield of 0.56%. Year to year as of December 2021, the Mastercard share price has shown a 4.47% increase rising from $334 per share to $349.
In addition, quarter to quarter growth has been steady throughout 2021 and at the time of writing the price-to-sales ratio is 19.58 and the return on equity is 127.62%. Currently, Mastercard has a profit margin of 45.50% and an operating margin on 53.64% while its trailing twelve month revenue is $17.79B.
While the recent decline in share price is expected to be temporary, it will likely be making some investors nervous. But the potential of a new deal with Amazon, moving its co-branded credit card to Mastercard from Visa, could see the Mastercard stock value increase.
Is Mastercard a good investment?
When Amazon announced that it would no longer accept Visa credit cards in the UK from next year, Visa shares plunged and took Mastercard shares with it, even though Amazon told customers that they would still be able to use non-visa debit and credit cards, such as Mastercard and American Express.
Currently, Amazon’s co-branded credit card is with Visa but it is anticipated that they will look to move this to Mastercard in the near future. If this deal was to go ahead, that would be a significant achievement for Mastercard and one that would rapidly increase their popularity given the size of the retails giants footprint.
The breakdown in relationship between Amazon and Visa could be hugely beneficial for Mastercard. If more retailers were to follow suit and also stop accepting Visa credit card more consumers will switch to Mastercard or other non-visa alternatives to ensure they can make payments where they need to.
If this happens, Mastercard will be in a strong position, and gaining a greater market share in this way would surely have a positive impact on their stock price. While this is not cast in stone, now may be a good time for investors to buy Mastercard stock.
What are the risks of investing in Mastercard?
A recent dip in the Mastercard stock price was due to countries across Europe reintroducing coronavirus restrictions, the announcement of a new strain of the virus in South Africa and the impacts these two factors could have on consumer activity.
As the fight against coronavirus continues worldwide, it is expected that further restrictions or future strains of the virus could once again impact the Mastercard stock price. In times of economic uncertainty such as this, some investors exercise caution and instead focus their investments on instruments that are less affected such as commodities like gold.
Although further declines could be on the horizon, it is important to note that Mastercard quickly bounced back from their recent decline and could potentially do so again if they were to find themselves in that position.
But the possibility of this occurring must be a consideration for investors and traders thinking about investing in Mastercard. As a long-term investment the impact of a downturn may not be a concern as there would be time for the stock price to bounce back. But for those looking for short-term investment opportunities may be better seeking alternatives instruments.
Is Mastercard stock a buy?
If the deal with Amazon were to go ahead then this could have a very positive impact on the price of Mastercard stock. On the other hand if stricter coronavirus restrictions were reintroduced around the world this could negatively impact the price of Mastercard shares.
No investment is a sure thing, and all markets experience a degree of volatility at some stage so it is vital that investors considering buying Mastercard stock do their research and seek investment advice before making any investment decisions.