How Are Shares of Mastercard Valued?

Shares of Mastercard (MA) traded flat during today's afternoon session, which brings their 52 week performance to -1.9%. The Market Inference outlook on this stock is that it is fairly valued at today's price of $375.13. But we also believe that a value analysis should be complemented by an overview of the company's strong growth indicators and positive market sentiment.

Mastercard Incorporated, a technology company, provides transaction processing and other payment-related products and services in the United States and internationally. The large-cap Financial Services company is based in Purchase, United States.

MA Has a Higher P/E Ratio Than the Sector Average

Compared to the Financial Services sector's average of 13.34, Mastercard has a trailing twelve month price to earnings (P/E) ratio of 36.7 and an expected P/E ratio of 25.8. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $10.22 or forward earnings per share of $14.53.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Mastercard's P/E ratio is higher than its sector average of 13.34, we can deduce that the market is overvaluing the company's earnings.

Mastercard Is Fairly Valued in Terms of Expected Growth

Another factor pointing to Mastercard's value is its PEG ratio of 1.51. This is the stock's price to earnings ratio divided by its estimated earnings growth rate. If the resulting ratio is near or lower than 1 — but higher than 0 — its indicates that the company is faitly valued in terms of expected growth.

MA Has an Alarming P/B Ratio

The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.

Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Mastercard's P/B ratio of 56.9 is higher than its sector average of 1.95, such a margin of safety does not exist for the stock.

Investors Stand to Gain from MA's Cash Flows

Mastercard has strong cash flows. With a coefficient of variability of 18.9% and an average growth rate of 12.3%, the company is effectively turning its revenue into cash. We calculate Mastercard's free cash flows by subtracting capital expenditures (long term investments in the business) from its total cash flows from operations. The table below shows us that capital expenditures are evolving at a 15.7% rate, versus 12.5% for operating expenses:

Date Reported Cash Flow from Operations ($ MM) Capital expenditures ($ MM) Free Cash Flow ($ MM) YoY Growth (%)
2022-12-31 11,195 -1,097 10,098 16.75
2021-12-31 9,463 -814 8,649 32.73
2020-12-31 7,224 -708 6,516 -12.6
2019-12-31 8,183 -728 7,455 n/a

Mastercard's Margins Are Strong

If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Mastercard's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.

Mastercard's Gross Margins


Mastercard's Operating Margins

Date Reported Total Revenue ($ MM) Operating Expenses ($ MM) Operating Margins (%) YoY Growth (%)
2022-12-31 22,237 9,617 56.75 4.78
2021-12-31 18,884 4,168 54.16 1.52
2020-12-31 15,301 3,351 53.35 -7.1
2019-12-31 16,883 3,650 57.43 n/a

Mastercard's cost of revenue is growing at a rate of None% in contrast to 49.0% for operating expenses. Sales revenues, on the other hand, have experienced a 10.6% growth rate. As a result, the average gross margins growth is None and the average operating margins growth rate is -0.3, with coefficients of variability of None% and 3.6% respectively.

Mastercard Benefits From Positive Market Signals

The market sentiment regarding Mastercard is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $472 to $355. MA is trading -11.36% away from its target price of $423.19. 0.8% of the company's shares are tied to short positions, and 79.0% of the shares are held by institutional investors.

Holder Shares Date Reported Percentage Value
Vanguard Group, Inc. (The) 77,259,535 2022-09-29 8% $28,982,369,741
Blackrock Inc. 63,969,799 2022-09-29 7% $23,996,991,011
State Street Corporation 33,865,057 2022-09-29 4% $12,703,798,997
Price (T.Rowe) Associates Inc 24,779,898 2022-09-29 3% $9,295,683,257
FMR, LLC 23,862,246 2022-09-29 2% $8,951,444,458
Capital International Investors 16,819,058 2022-09-29 2% $6,309,333,309
JP Morgan Chase & Company 16,671,719 2022-09-29 2% $6,254,062,029
Geode Capital Management, LLC 16,097,543 2022-09-29 2% $6,038,671,384
Wellington Management Group, LLP 15,586,387 2022-09-29 2% $5,846,921,431
Morgan Stanley 13,458,052 2022-09-29 1% $5,048,519,112
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.