Should You Be Adding Mastercard (NYSE:MA) To Your Watchlist Today?

By
Simply Wall St
Published
March 17, 2022
NYSE:MA
Source: Shutterstock

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Mastercard (NYSE:MA). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for Mastercard

Mastercard's Earnings Per Share Are Growing.

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That makes EPS growth an attractive quality for any company. We can see that in the last three years Mastercard grew its EPS by 16% per year. That's a good rate of growth, if it can be sustained.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. While we note Mastercard's EBIT margins were flat over the last year, revenue grew by a solid 23% to US$19b. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NYSE:MA Earnings and Revenue History March 17th 2022

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Mastercard's future profits.

Are Mastercard Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$337b company like Mastercard. But we are reassured by the fact they have invested in the company. Notably, they have an enormous stake in the company, worth US$336m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations over US$8.0b, like Mastercard, the median CEO pay is around US$12m.

Mastercard offered total compensation worth US$9.2m to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Is Mastercard Worth Keeping An Eye On?

One positive for Mastercard is that it is growing EPS. That's nice to see. The fact that EPS is growing is a genuine positive for Mastercard, but the pretty picture gets better than that. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Mastercard that you should be aware of.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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