Visa Is One of the Largest Financial Companies by Market Cap. But Is It a Buy?

Key Points

• Despite macro uncertainty, Visa posted strong growth in revenue and payment volume in the latest fiscal quarter.

• Visa is one of the world's most profitable companies, with a net margin that typically hovers above 50%.

• The valuation isn’t cheap, which could get in the way of achieving strong returns.

• 10 stocks we like better than Visa ›

When it comes to businesses in the financial services sector, investors are probably familiar with those with a consumer-facing presence. I'm talking about the big banks, like JPMorgan Chase or Bank of America. They might even be familiar with the conglomerate Berkshire Hathaway, whose success stems from Warren Buffett's capital allocation prowess.

Investors shouldn't forget about Visa (NYSE: V), one of the world's largest card payment networks. At a market cap of $691 billion, it's also one of the most valuable financial companies.

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Shares have climbed 34% in the past 12 months (as of July 10). But should you buy Visa stock right now?

Image source: Getty Images.

Ignore near-term worries

When President Donald Trump was elected last November, many people were sure that the U.S. would enter a period of incredible prosperity. While we're still early in his term, and that favorable outcome could still happen, Trump's time back in the White House has been far from smooth sailing. In particular, his trade policy is giving many executives and investors reasons to be worried.

Businesses already have a difficult time forecasting their financial results; the dynamic tariff situation makes things much more challenging since no one has any clue how things will shake out.

This problem doesn't really bother Visa; its business continues to hum along. During the fiscal 2025 second quarter (ended March 31), revenue increased 9% year over year. This was driven by an 8% jump in total payment volume, with cross-border activity up by double digits.

This isn't to say that its financials won't feel the pressure in a recessionary scenario; they certainly will. Since the company's success depends on robust spending across the economy, a downturn would have a negative effect as consumers and businesses tighten up their purse strings.

But Visa can hold up better than virtually any other company. A slight revenue decline isn't troubling at all, since things will turn around once the economy gets on solid footing.

It helps that the economy expands over long periods. Add this to the secular trend of widely adopted digital payments at the expense of cash usage, and the company is poised to experience durable growth.

What's more, Visa is ridiculously profitable. In the past five years, its net profit margin has averaged 51.8%. And in the second quarter, it reported $4.4 billion in free cash flow. Investors don't have to worry much about the business running into financial troubles. That provides invaluable peace of mind.

Visa's valuation

Visa has been a winning stock. In the past decade, shares are up 432%.

However, I don't think the valuation gives investors any margin of safety. The stock trades at a price-to-earnings ratio of 35.9, expensive for a business whose earnings per share are projected to grow at a compound annual rate of 12.6% between fiscal 2024 and fiscal 2027.

While I don't necessarily view the current valuation as being attractive, I can still understand why investors would consider buying the stock right now. This is an outstanding company that posts steady revenue growth, with tremendous profitability.

And maybe most importantly, it possesses an extremely powerful network effect. With more active cards and greater spending, Visa can boost the number of merchants that accept it as a method of payment. In turn, this leads to more consumers wanting to have one of its credit or debit cards.

This leads me to believe that Visa has staying power. But smart investors should keep their expectations in check -- the stock isn't guaranteed to outperform the market in the future.

Should you invest $1,000 in Visa right now?

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JPMorgan Chase is an advertising partner of Motley Fool Money. Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, JPMorgan Chase, and Visa. The Motley Fool has a disclosure policy.