Is It Too Late to Buy Mastercard Stock?

There aren't many companies that can say they took care of their shareholders better than Mastercard (NYSE: MA) has. Since its initial public offering (IPO) in May 2006, the card-payments giant has produced a total return of 10,910%. The S&P 500 , in comparison, generated a total return of 521% during the same time frame.

Mastercard's market cap is currently $415 billion. Is it too late to buy this top financial stock?

Another strong quarter

Mastercard once again reported another fine quarter. Revenue of $7 billion came in ahead of Wall Street forecasts. This top line was driven by 9% growth in gross dollar volume, with Mastercard handling a whopping 39.4 billion transactions.

Cross-border volume soared 17%. This area remains a strength for the company and indicates how valuable Mastercard's network is for helping facilitate transactions where the parties are located in different countries. "We feel good about the cross-border opportunity, not only in and out of Europe, but globally for the company," CFO Sachin Mehra said on the Q2 2024 earnings call .

Besides its payment platform, Mastercard offers other services, like consulting, data analytics, fraud prevention, and cybersecurity. This segment saw an 18% year-over-year revenue jump.

During the second quarter, Mastercard registered $3.59 in adjusted earnings per share (EPS), up 24% compared to Q2 2023. This bottom-line metric is an impressive 90% higher than the same period five years earlier. Bolstered by a phenomenally scaled business model , the operating margin was a stellar 58%, demonstrating Mastercard's profitability.

Key competitive strengths

Mastercard's track record of consistent success can be attributed to network effects , which underpin the company's economic moat. There are 3.4 billion cards in circulation accepted at an estimated 130 million merchant locations, an ecosystem that becomes more useful to all stakeholders the larger it gets. It would be virtually impossible for a new network to be created from scratch to rival this one.

Consequently, this makes Mastercard a safe business. There are low threats of disruption, raising the chances that the company will be around and thriving far into the future. Mastercard is an essential infrastructure-services provider for the smooth functioning of the global economy.

Mastercard stock's valuation

As of Aug. 1, Mastercard shares can be purchased at a price-to-earnings ratio of 36.8. On the surface, this looks expensive, but it's slightly below the trailing-10-year average of 37.6.

That valuation alone doesn't tell investors much. It needs to be viewed in light of other factors that could reveal if Mastercard is still a worthy investment candidate.

For starters, the business is set to continue reporting solid sales and profit growth. According to Wall Street consensus analyst forecasts, Mastercard's revenue and adjusted EPS are projected to rise at compound annual rates of 11.8% and 16.4%, respectively, between 2023 and 2026. This outlook is encouraging.

I suspect the company has a much longer growth runway than the next three years, especially considering the long-term secular tailwind of cashless transactions. While the U.S., a developed economy, is still a long way from becoming totally cashless, emerging markets should see more pronounced growth, benefitting Mastercard.

Add this to incredible levels of profitability and powerful network effects, and no, it's not too late to buy Mastercard. Future returns aren't likely to resemble the past, but this is an elite business to consider adding to your portfolio.

Neil Patel and his clients have 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 .