Visa Stock Drops After Massive Earnings News

The stock market had a rough day on Wednesday and Visa (NYSE: V) didn't help the cause. It reported fiscal third-quarter earnings results after the bell on Tuesday. Shares fell as much as 4.4% early in trading Wednesday and were down 4.1% as of 1 p.m. ET.

Quarterly results fall short

Net revenue was up 10% to $8.9 billion and net income jumped 17% to $4.9 billion, or $2.42 per share. Earnings were in line with expectations but revenue missed estimates of $8.92 billion.

The revenue miss was small, but the details behind the miss were important. Management said high earners were still spending but lower earners had started to cut back on spending. As a company that's part of the payment fabric for all economic activity, a slowdown in consumer spending will hit Visa's growth more than most companies.

Payments volume was up just 7% and that's ultimately the biggest growth driver for the business, so it barely exceeds inflation.

Valuation becomes a concern

While a double-digit growth rate and net margin of over 50% would be the envy of most companies, investors had already priced in significant growth and strong performance for Visa. Shares are trading for 31 times trailing earnings and a market cap of $510 billion, which puts the price-to-sales multiple at 14 times. That's an incredibly high multiple if there's any sign of weakness and Visa may have shown some with slowing transaction growth. The market is just reassessing the risk in the future.

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Visa. The Motley Fool has a disclosure policy .