Is Visa’s 23% Rally in 2024 Justified by Its Current Fundamentals?

Thinking about what to do with Visa stock right now? You are not alone. Investors everywhere are looking at this payments giant and trying to figure out if recent momentum is just the beginning, or if shares have already priced in all the good news. Over the past year, Visa has clocked in an impressive 23.0% return, tacking on nearly 10.0% so far in 2024. In just the past week, the stock moved up another 3.1%. This momentum is hard to ignore.

What is fueling this strength? Beyond the surge in digital transactions and global travel spending, Visa has been pushing deeper into the fintech and cross-border payments arena, strengthening its network through recent partnerships and tech integrations. While the headlines have certainly seemed bullish, many investors have started to question whether continued innovation and expansion are enough to justify Visa's current price tag, or if risks such as regulatory scrutiny and intensifying competition are coming back into focus.

Despite all the positive developments, a quick check of Visa’s valuation score offers a note of caution. On a scale where 6 is most undervalued, Visa currently scores a 0, meaning it is not coming up as undervalued in any of the main metrics used by analysts today.

To really get to grips with whether Visa shares offer value right now, it is helpful to break down the classic valuation approaches and then consider whether there is an even smarter way to size up the stock’s true potential by the end of this review.

Visa scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Visa Excess Returns Analysis

The Excess Returns valuation model looks at how effectively Visa is able to generate profits above the minimum rate of return required by its shareholders. This approach is a great fit for established businesses like Visa, which consistently produce strong profits well above their cost of equity.

For Visa, the data tells a compelling story. With an average return on equity of 73.59%, Visa’s ability to create value from every dollar invested is unmistakable. The stable book value per share comes in at $20.78, while the forecasted stable earnings per share land at $15.29. After subtracting the cost of equity, estimated at $1.55 per share, Visa’s excess return is a robust $13.75 per share.

This model uses future estimates from groups of analysts for both return on equity and book value, layering on expert consensus to assess what each share should be worth based on the company’s surplus profitability. Based on these inputs, the Excess Returns model signals an estimated intrinsic value that is about 3% below the current price, suggesting the stock is slightly overvalued, but not dramatically so.

Result: ABOUT RIGHT

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

Simply Wall St performs a valuation analysis on every stock in the world every day (check out Visa's valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: Visa Price vs Earnings

The price-to-earnings (PE) ratio is the preferred way to value profitable businesses like Visa, since it shows how much investors are willing to pay for each dollar of earnings. For companies with strong profitability, a PE ratio quickly communicates whether the stock is expensive or cheap based on current earnings.

Growth expectations and risk are two big forces that shape what qualifies as a “normal” or “fair” PE ratio for any company. Higher earnings growth or lower perceived risk generally justify a higher multiple, while slower growth or more uncertainty pull the ratio down.

At the moment, Visa trades at a PE ratio of 33.2x. That is meaningfully above the industry average of 16.5x and its peer average of 22.1x. However, instead of simply comparing Visa to the industry, we can look at Simply Wall St's Fair Ratio, which considers Visa’s own earnings growth prospects, profit margins, market cap, and risks. The proprietary Fair Ratio for Visa sits at 23.3x.

The Fair Ratio is a more tailored benchmark than basic industry or peer comparisons. It adjusts for Visa’s unique business strengths and risk factors, making it a more accurate way to measure whether the stock’s valuation reflects reality.

With Visa’s current PE ratio about 10x higher than its Fair Ratio, the stock looks overvalued on this metric.

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 Visa 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 simple, user-friendly way to tell your story about a company like Visa. It connects what you believe about its future, such as revenue growth, profit margins, and risks, to a specific financial forecast, and then calculates your own fair value per share.

Narratives help bridge the gap between headlines and hard numbers by allowing you to anchor your investment decisions in a broader context. This approach is not just about what the company has done, but what you expect it can achieve going forward. On Simply Wall St’s platform, millions of investors use Narratives on each company’s Community page to share their perspectives and see how others are thinking, all using the same structured approach.

With Narratives, you can easily compare your fair value estimate for Visa to the current market price. This helps you quickly see whether you think the stock is undervalued, overvalued, or about right, enabling you to decide your next steps based on your personal outlook. Plus, Narratives update automatically as new news or earnings results come in, making your analysis more dynamic and keeping it relevant.

For example, one investor’s Narrative for Visa might assume regulatory risks will limit earnings, resulting in a fair value of $243 per share. Another might see e-commerce strength driving ongoing growth, with a fair value closer to $391. This approach empowers you to choose the story, and the numbers, that make the most sense to you.

For Visa, however, we'll make it really easy for you with previews of two leading Visa Narratives:

🐂 Visa Bull Case

Fair Value: $391.46

Current Price is 11.6% below fair value

Expected Revenue Growth: 10.1%

• Global e-commerce adoption and expansion into emerging markets are expected to boost payment volumes and drive durable long-term growth.
• Growth in higher-margin value-added services and cross-border solutions is broadening Visa’s revenue mix and improving earnings quality.
• Risks include regulatory changes, disruptive new payment technologies, and fierce competition that threaten traditional revenue streams and margins.

🐻 Visa Bear Case

Fair Value: $243.09

Current Price is 42.3% above fair value

Expected Revenue Growth: 9.1%

• Visa benefits from strong digital payments growth and an international presence but faces high investor expectations and a maturing market.
• Potential passage of the Credit Card Competition Act and intensifying competition may reduce transaction fees and erode Visa’s wide profit margins.
• Analysts forecast revenue growth slowing and the valuation multiple declining, leading to a lower fair value than today’s price.

Do you think there's more to the story for Visa? 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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