Is It Too Late to Buy Mastercard Stock?

Mastercard (NYSE: MA) has a long history of success behind it as one of the two largest retail financial transaction processors in the world. You'll probably find the Mastercard logo on a credit or debit card in your own wallet. That business success has attracted its share of stock success as well.

While the stock has generally been on a consistent path up in value, it has retreated around 10% from its March high-water mark. This might tempt some buyers looking for a bargain.

But is this really a bargain price?

Mastercard has a great record

Shares of Mastercard have risen around 9,500% since its initial public offering (IPO) in 2006. That's a reflection of a company that has executed incredibly well. And it has also rewarded investors well in other ways, too. For example, the dividend has been increased annually for 13 consecutive years. The dividend's annualized growth rate over the past decade, meanwhile, was a huge 21%!

Image source: Getty Images.

To be fair, more recent dividend increases haven't matched that figure. But the mid-teens dividend growth rate over the past three- and five-year periods is still incredibly strong. From a business perspective, 10-year annualized revenue growth over the past decade was a heady 11.5% or so, with annualized earnings advancing around 16.5%.

The increasing use of cards over cash has been a huge driver of Mastercard's success. And the internet, where physical cash just isn't an option, is likely to keep the growth going. Mastercard's story is still quite attractive in many ways.

Is it time to buy Mastercard stock?

There's one big problem with Mastercard: Wall Street is very aware of how strong its performance has been. And, thus, it has generally been afforded a premium stock price. To put a number on that, the company's price-to-earnings ratio (P/E) is 35. That's a fairly high number on an absolute basis. If you are a value-conscious investor, Mastercard isn't likely to be attractive to you.

Meanwhile, the dividend yield is a paltry 0.6%. That's woefully below even the S&P 500 index's 1.3%, which is pretty anemic in its own right. The average financial stock has a yield of roughly 1.6%, using the Financial Select Sector SPDR Fund (NYSEMKT: XLF) as a proxy. So it doesn't seem like Mastercard will be of interest if you are looking to maximize the income your portfolio generates.

But there's a caveat to consider in both cases. While the P/E ratio is high, it is now below the stock's five-year average P/E of 40. That's a notable difference. And the dividend yield is about middle of the road over the past decade. So while the stock isn't exactly cheap, it is cheaper than it has been.

MA data by YCharts

Given the long-term growth that has been achieved and the potential for further business expansion in the future, it seems like this drawdown might be an appealing buying opportunity for growth investors. However, as the chart above shows, 15% to 20% pullbacks are pretty common for Mastercard's stock. So you probably haven't missed the opportunity, but you might be a little early. Thus, it probably deserves a place on your wish list but maybe not your buy list yet.

The Mastercard story is growth

All told, if you are a value or income investor, you won't want to buy Mastercard. It just won't meet your needs. If you are a growth investor or a growth-and-income investor, however, the stock could be attractive to you. But don't rush in just yet despite the shares' recent pullback. A 10% price decline is nice, but Mastercard's history suggests that a 15% to 20% drawdown is pretty normal. So you haven't missed anything, but you could be a little early if you buy this stock right now.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy .