Own Of The Highest Quality Compounders In Mastercard
"Even The Highest Quality Stocks Can Deliver Underwhelming Returns"
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Current Price: $568.57
Portfolio Purpose: Growth 📉
Mastercard (MA) and Visa (V) are two of the highest-quality businesses in the market. Their toll-booth business models, global scale, and consistent double-digit growth justify premium valuations—and they’re among the few stocks I consider “never sells.”
That said, even great companies can deliver underwhelming returns when bought at the wrong price.
At current levels, I rate Mastercard a cautious Buy. But I believe investors are better served waiting for a 20%–30% pullback to establish a meaningful margin of safety. However, due to its quality business, the credit card giant rarely goes on sale.
Strong Execution Continues ↗️
Mastercard delivered another excellent quarter, beating both revenue and EPS expectations as consumer spending remained resilient.
Growth was broad-based:
Revenue and EPS both grew double digits
Value-added services revenue jumped over 20%
Cross-border volumes and transactions remained strong
Operating margins expanded to nearly 60%
The business remains capital-light, highly profitable, and globally diversified through partnerships across India, the Middle East, Europe, and Latin America.
Dividend & Buyback Powerhouse 💵
Mastercard recently raised its dividend 14.5%, reinforcing its status as a top-tier dividend compounder. With over $12 billion in free cash flow through the first nine months and minimal CAPEX requirements, the company has enormous financial flexibility.
Management also continues to aggressively retire shares, recently authorizing a $14 billion buyback program, supporting long-term EPS growth.
Fortress Balance Sheet ⚖️
Mastercard’s balance sheet remains pristine. Debt levels are modest relative to its market cap, maturities are well-laddered, and the company carries an A-level credit rating. This gives MA the ability to keep investing, buying back shares, and raising dividends regardless of macro conditions.
Valuation Is the Hang-Up ⚠️
Despite flawless execution, valuation is the key concern.
Forward P/E near 35x, well above peers
Trading above its long-term historical multiple
Leaves little room for error if growth slows
While long-term upside remains compelling, buying at today’s price increases the risk of market underperformance, even for a world-class business.
Bottom Line ✅
Mastercard is one of the best companies in the market—full stop. But at current levels, investors are paying up for perfection.
I’d love to own MA, but closer to the low-$500s, where valuation better aligns with future returns. Until then, patience may be rewarded.
Great business. Rich price. Wait for the pullback.
At what price do you think Mastercard is a buy?
Happy Investing!
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Not financial advice. For educational purposes only. I am not a licensed professional. Do your own due diligence.
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