Will Recent 3% Drop Create Opportunity in Mastercard for 2025?

If you are trying to figure out whether to buy, hold, or sell Mastercard stock right now, you are not alone. With the stock closing at $565.13 recently, there has been plenty for investors to digest. Over the last week, Mastercard's share price fell by 3.3%, and it is down 4.3% over the past month. Step back, though, and you will notice the year-to-date return is a healthy 8.2%, and the stock has soared 15.1% over the past year alone. Go back three years and the returns look even more impressive at 102.3%, with a 71.6% gain over five years. These numbers hint at both growth potential and a bit of recent volatility, driven in part by shifts in payment technology and changes in how consumers and businesses are spending globally.

Of course, returns like these spark questions about value. Is Mastercard's stellar long-term performance justified by its underlying fundamentals, or is the stock starting to look expensive? Based on six traditional valuation checks, Mastercard only scores a 1, meaning it is undervalued on just one of them. That might give some investors pause, but numbers never tell the whole story in isolation. Let's walk through the most common ways market watchers try to assess company value and keep an eye out for a smarter, more holistic approach that investors can use to judge Mastercard's true 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 valuation model is used to assess whether a company generates returns on its invested capital beyond the minimum required by shareholders, known as the cost of equity. This approach is especially useful for financial businesses like Mastercard, because traditional value comparisons might miss the impact of record-high profitability or reinvestment strategies.

Key data points for Mastercard reveal a robust performance. The stock's Book Value sits at $8.67 per share, while projected stable earnings per share are $28.96, based on weighted future Return on Equity estimates from 12 analysts. The average return on equity is extraordinarily high at 195.26%, reflecting Mastercard's efficiency at turning shareholder capital into profit. With a Cost of Equity of just $1.11 per share and a Stable Book Value estimate of $14.83 per share, Mastercard’s Excess Return comes in at $27.85 per share. This highlights the company’s ability to consistently earn well above its cost of capital.

The resulting intrinsic value from this model suggests that Mastercard is currently valued at a 12.9% discount to its fair value. This indicates the stock is notably undervalued compared to its fundamentals and profit-generating power.

Result: UNDERVALUED

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

Our Excess Returns analysis suggests Mastercard is undervalued by 12.9%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Mastercard Price vs Earnings

The Price-to-Earnings (PE) ratio is widely regarded as the go-to valuation metric for profitable companies like Mastercard. This ratio gives investors a quick read on how much they are paying for each dollar of the company’s current earnings, helping to highlight both value and growth expectations in a single figure.

Mastercard’s current PE ratio stands at 37.60x, which is considerably higher than the Diversified Financial industry average of 16.81x and its peer average of 20.56x. On the surface, a high PE can sometimes signal overvaluation, but it can also reflect higher expected growth, strong profitability, or lower risk. In other words, what seems expensive in one context could be justified in another, especially for businesses with Mastercard’s track record and prospects.

This is where Simply Wall St’s “Fair Ratio” metric comes into play. The Fair Ratio, here calculated as 20.94x, goes beyond basic benchmark comparisons by factoring in Mastercard’s long-term earnings growth, profit margins, industry positioning, and risk profile. It is designed to provide a more holistic and tailored view of valuation than simply lining up industry or peer numbers. Given that Mastercard’s current PE (37.60x) is significantly above its Fair Ratio, the stock appears to be trading at a premium that may not be fully justified by fundamentals and forward-looking growth.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 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's introduce you to Narratives. A Narrative is a way to give your perspective about a company, linking Mastercard’s underlying story and potential with your own financial forecasts and assumptions. This connects what you believe about its future to clear numbers like fair value, expected revenue, or margin growth.

Narratives help cut through the noise by turning your insights, research, or gut feeling about Mastercard into a structured forecast and an up-to-date fair value. This makes your investment decisions both logical and personal. This approach is easy to access: on Simply Wall St’s Community page, investors can explore a variety of Narratives, see how others are thinking, and even build their own. Millions use this every month.

Narratives empower you to confidently decide when to buy, hold, or sell, by comparing your fair value directly with today’s price. They update dynamically whenever news or results are released, so your outlook stays relevant. For example, some investors see Mastercard’s fair value as high as $690, because they expect digital payments to grow rapidly, while others put fair value closer to $520, reflecting greater caution about competition and regulation.

Do you think there's more to the story for Mastercard? Create your own Narrative to let the Community know!

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.

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