Today we're going to take a closer look at large-cap Consumer Discretionary company Visa, whose shares are currently trading at $275.96. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
Trades Below Its Graham Number but Has an Elevated P/B Ratio:
Visa Inc. operates as a payment technology company in the United States and internationally. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.96 and an average price to book (P/B) ratio of 4.24. In contrast, Visa has a trailing 12 month P/E ratio of 31.8 and a P/B ratio of 14.53.
Visa's PEG ratio is 2.09, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Strong Revenue Growth With Increasing Reinvestment in the Business:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $20,609 | $22,977 | $21,846 | $24,105 | $29,310 | $32,653 |
| Revenue Growth | n/a | 11.49% | -4.92% | 10.34% | 21.59% | 11.41% |
| Operating Margins | 63% | 65% | 64% | 66% | 64% | 64% |
| Net Margins | 50% | 53% | 50% | 51% | 51% | 53% |
| Net Income (MM) | $10,301 | $12,080 | $10,866 | $12,311 | $14,957 | $17,273 |
| Net Interest Expense (MM) | -$612 | -$533 | -$516 | -$513 | -$538 | -$644 |
| Earnings Per Share | $4.42 | $5.32 | $4.89 | $5.63 | $7.0 | $8.28 |
| EPS Growth | n/a | 20.36% | -8.08% | 15.13% | 24.33% | 18.29% |
| Diluted Shares (MM) | 2,329 | 2,272 | 2,223 | 2,188 | 2,136 | 2,085 |
| Free Cash Flow (MM) | $12,223 | $12,028 | $9,704 | $14,522 | $17,879 | $19,696 |
| Capital Expenditures (MM) | $718 | $756 | $736 | $705 | $970 | $1,059 |
| Current Ratio | 1.5 | 1.27 | 2.12 | 1.4 | 1.44 | 1.45 |
| Total Debt (MM) | $16,633 | $16,729 | $24,054 | $21,919 | $22,450 | $20,463 |
Visa benefits from rapidly growing revenues and increasing reinvestment in the business, generally positive cash flows, and healthy debt levels. The company's financial statements show strong operating margins with a stable trend and a strong EPS growth trend. Furthermore, Visa has just enough current assets to cover current liabilities, as shown by its current ratio of 1.45.
