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Which of These Credit Card Companies Should Investors Buy?
Posted by: Vinay Singh (IP Logged)
Date: June 19, 2014 05:05PM
In the credit card industry, the three major players are Visa (V), MasterCard (MA), and American Express (AXP). There are positive and negative financial aspects for all three of these companies. Should you invest in any of these companies? That is the question every investor who is thinking about getting into the credit industry wants to know the answer to. I will examine all three companies and make the case for why MasterCard is the best investment based on its numbers.
Visa saw decent results in the first quarter that surpassed expectations. EPS increased 30% due to the smaller amount of shares outstanding. Visa has also been investing in electronic payment systems, which is positive for future growth. The company has seen an increase inpayment volume and transaction volume in the United States and in foreign markets.
Despite the increase in operating expenses and many analysts projecting that the stock willhave a neutral performance this year, I believe MasterCard is doing well in the sense that it has no major debt. The company has a clean balance sheet with more than $5 billion in cash.
MasterCard also consistently sees a strong operating margin of 54%, return on its assets of 23%, ROE at 43%, and compound growth in revenue of more than 12%. In fact, revenue is near record highs.
American Express is currently growing strong. The company’s reported growth results were 8% in the first quarter. American Express also saw around a 22% ROE, which puts the company inthe top 5% compared to its competitors in the credit industry.
The bottom line
Companies in the credit industry, just like any other industry, have their positive and negative aspects. Investors are still attracted to companies in the credit industry because it can result in a higher alpha. Investors can, however, decrease the amount of risk by carefully analyzing the companies involved.
It would appear that MasterCard has a more positive outlook than its competitors. Its financial numbers are quite strong. Revenue is close to a record high and the company is seeing a strong ROI. MasterCard is also debt free and has a good amount of cash on hand. That is why I recommend buying MasterCard stock if you are looking to invest in the credit industry.
Stocks Discussed: AXP, MA, V,