Is Mastercard Still Attractive After Its Strong Multi Year Share Price Run?

• If you are wondering whether Mastercard at around $565 a share is still a smart buy, or if most of the upside has already been priced in, this breakdown is for you.
• The stock has climbed 4.9% over the last week, 5.3% over the past month, and is up 8.2% year to date, building on 9.4% over 1 year and 66.5% and 76.7% over 3 and 5 years respectively.
• Recent headlines have focused on Mastercard’s continued push into real time payments and open banking partnerships, as well as regulatory discussions around interchange fees and network competition. Together, these themes help explain why the market keeps reassessing both the company’s growth runway and its risk profile.
• Even so, Mastercard only scores a 1/6 valuation check score, suggesting that by traditional metrics it often looks fully or even richly priced. In the sections ahead we will unpack those valuation approaches, then finish with a more holistic way to think about what the stock may be worth.

Mastercard scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Mastercard Excess Returns Analysis

The Excess Returns model estimates what Mastercard is worth by measuring how much profit it can generate above its cost of equity, then capitalizing those surplus returns into an intrinsic value per share.

In this framework, Mastercard starts with a relatively modest Book Value of $8.78 per share, but converts that equity base into a Stable EPS of $26.93 per share, based on weighted future Return on Equity estimates from 11 analysts. With an Average Return on Equity of 211.58% and a Cost of Equity of $0.94 per share, the model calculates an Excess Return of $25.99 per share, indicating that most of Mastercard’s earnings are economic profit, not just a normal return on capital.

Using a Stable Book Value of $12.73 per share, sourced from weighted future Book Value estimates from 8 analysts, these excess returns are projected forward and discounted back to today, resulting in an intrinsic value of about $641 per share. Versus a current price near $565, the Excess Returns model indicates that Mastercard is roughly 11.8% undervalued in this framework.

Result: UNDERVALUED

Our Excess Returns analysis suggests Mastercard is undervalued by 11.8%. Track this in your watchlist or portfolio, or discover 907 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Mastercard.

Approach 2: Mastercard Price vs Earnings

For a mature and strongly profitable business like Mastercard, the price to earnings ratio is a practical way to gauge valuation because it links what investors pay directly to the cash generating power of the company. Higher growth and lower perceived risk generally justify a higher PE multiple, while slower growth or elevated uncertainty usually warrant a discount.

Mastercard currently trades on a PE of about 35.6x, which is far above the Diversified Financial industry average of roughly 13.6x and also ahead of its peer group average of around 16.8x. On the surface that makes the stock look expensive. However, Simply Wall St’s Fair Ratio framework estimates that, after accounting for Mastercard’s earnings growth profile, high margins, scale and risk factors, a more appropriate PE for the company is closer to 19.8x.

This Fair Ratio is more informative than a simple industry or peer comparison because it adjusts for Mastercard’s superior profitability and growth while still reflecting its competitive and regulatory risks. Comparing the current 35.6x PE to the 19.8x Fair Ratio suggests the shares are pricing in more optimism than the fundamentals support.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1455 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Mastercard Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple framework on Simply Wall St’s Community page where you connect your story about Mastercard to a concrete forecast for its future revenue, earnings and margins, then to a Fair Value that you can compare with today’s price to decide whether to buy or sell. All of this automatically updates when new news or earnings land. For example, a bullish investor might build a Narrative that assumes Mastercard’s digital and cross border payment momentum supports a fair value near the top analyst target of about $690 per share, while a more cautious investor could construct a Narrative that leans into regulatory risk and alternative payment competition and lands closer to the low target of around $520, with both perspectives clearly tied to their underlying assumptions instead of just a single PE multiple.

Do you think there's more to the story for Mastercard? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com