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Visa stock rally makes it ‘expensive’ for new buyers

Visa stock

The electronic payment solution company Visa (NYSE: V) saw a massive share price growth since dipping to March’s low of $135 a share. The share price rally looks stunning for shareholders, but new investors are wondering whether it’s wise to buy Visa stock after a 56% run in the last eight months that pushed its price to earnings ratio to an all-time high of 40x.

Bears believe Visa stock price has downside risk ahead-considering negative revenue growth outlook. However, fundamentals for international traveling and tourism have started improving since Pfizer announced to supply more than a billion doses next year.

Visa stock performance. Finviz chart

The downside risk is high

Visa stock price rally is mostly brought in by the unprecedented broader market recovery from March pandemic lows.

Meanwhile, the share price rally is lacking support from financial numbers. Its September quarter net revenues fell 17% year over year while earnings per share also saw a double-digit decline. The company blamed international traveling restrictions for negative financial growth, which is likely to take sometime before recovering to the pre-pandemic level.

On the other hand, the company has been seeking to capitalize on consumer’s shift towards online platforms and cash digitalization.

“Visa drove the adoption of e-commerce and tap to pay to accelerate cash digitization, successfully unlocked new flows by expanding Visa Direct and B2B partnerships, and facilitated client innovation through our value-added services,” said Chairman and CEO Alfred F. Kelly, Jr.

Dividends are a bright spot

Visa is among the companies with established dividend growth history. The company has raised dividends in the past 12 straight years. Despite pandemic and negative revenue growth, Visa has raised the quarterly dividend by 6.7% last month.

Its strong cash position is helping it in sustaining the dividend growth. The company ended the third quarter with $20 billion in cash, cash equivalents, and investment securities. Moreover, the company is optimistic about growth opportunities amid the world’s move to digital payments.

“As the world turns increasingly to digital payments, we see tremendous opportunity for growth. We’ll remain thoughtful in our investments as we advance our strategy to enable the movement of money for everyone, everywhere,” Alfred F. Kelly, Jr said.

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