Mastercard shares fell by -1.9% during the day's morning session, and are now trading at a price of $584.22. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
The Market May Be Overvaluing Mastercard's Earnings and Assets:
Mastercard Incorporated, a technology company, provides transaction processing and other payment-related products and services in the United States and internationally. The company belongs to the Real Estate sector, which has an average price to earnings (P/E) ratio of 27.31 and an average price to book (P/B) ratio of 1.94. In contrast, Mastercard has a trailing 12 month P/E ratio of 39.4 and a P/B ratio of 67.4.
Mastercard has moved 19.9% over the last year compared to 18.5% for the S&P 500 — a difference of 1.5%. Mastercard has a 52 week high of $601.77 and a 52 week low of $465.59.
Strong Revenue Growth but an Average Current Ratio:
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $16,883 | $15,301 | $18,884 | $22,237 | $25,098 | $28,167 |
| Operating Margins | 56% | 53% | 53% | 55% | 56% | 55% |
| Net Margins | 48% | 42% | 46% | 45% | 45% | 46% |
| Net Income (M) | $8,118 | $6,411 | $8,687 | $9,930 | $11,195 | $12,874 |
| Net Interest Expense (M) | $224 | $380 | $431 | $471 | $575 | $571 |
| Depreciation & Amort. (M) | $522 | $580 | $726 | $750 | $799 | $897 |
| Diluted Shares (M) | 1,013 | 1,006 | 992 | 971 | 946 | 927 |
| Earnings Per Share | $7.94 | $6.37 | $8.76 | $10.22 | $11.83 | $13.89 |
| EPS Growth | n/a | -19.77% | 37.52% | 16.67% | 15.75% | 17.41% |
| Avg. Price | $250.56 | $304.19 | $353.21 | $347.79 | $426.51 | $584.22 |
| P/E Ratio | 31.4 | 47.53 | 40.18 | 33.9 | 35.96 | 42.0 |
| Free Cash Flow (M) | $7,761 | $6,885 | $9,056 | $10,753 | $11,609 | $14,306 |
| CAPEX (M) | $422 | $339 | $407 | $442 | $371 | $474 |
| EV / EBITDA | 25.39 | 35.6 | 33.06 | 26.66 | 27.94 | 33.67 |
| Total Debt (M) | $8,527 | $12,672 | $13,901 | $14,023 | $15,681 | $18,226 |
| Net Debt / EBITDA | 0.15 | 0.3 | 0.6 | 0.54 | 0.48 | 0.59 |
| Current Ratio | 1.42 | 1.61 | 1.29 | 1.17 | 1.17 | 1.03 |
Mastercard benefits from rapidly growing revenues and increasing reinvestment in the business, strong operating margins with a stable trend, and generally positive cash flows. The company's financial statements show positive EPS growth and healthy leverage levels. Furthermore, Mastercard has just enough current assets to cover current liabilities, as shown by its current ratio of 1.03.
