Visa (NYSE:V) stock is setting up for another solid year. There’s a good chance at least one credit card in your wallet is Visa-branded. It’s the largest payments processor with some 4.3 billion Visa cards in circulation and generated $14.5 trillion in total payments and cash volume for the full fiscal year.
V stock enjoyed a near 100% total return over the past five years and it tripled over the past decade. That is twice the return of the S&P 500. Can Visa double its value to become a trillion-dollar stock in the next five years? Only a handful of companies earn that distinction now. So let’s see whether Visa can join this rarified group before the end of the decade.
A Cashless Society and V Stock
There is a long-term trend toward digitization and cashless payments. Even in emerging markets, there is a move toward eliminating cash.
Visa’s dominance in the U.S. and global partnerships suggest significant benefits from the development. Visa’s 2023 survey of its global card network found 95% of small businesses planned to go cashless “someday” while 51% said they would do so within two years.
Although we primarily think of Visa and rival Mastercard (NYSE:MA) as stodgy credit card companies, they are quite innovative with diversified product lines. Visa created money transfer service Visa Direct and cross-border payments solution Visa B2B Connect, It also developed Visa Cloud Token, a framework that offers secure authentication for digital transactions.
It’s also made many acquisitions and investments over the years that strengthen its competitive edge and grow its market share. Among them are cross-border payments provider Currencycloud, Latin America and Caribbean fintech YellowPepper, and Europe-based Tink.
Its partnership with Crypto.com offers a Visa-branded debit card for use in making crypto-linked transactions. Visa now has over 65 crypto wallet partners and is developing a native digital currency settlement platform on card networks.
Continuing to move and expand financial opportunities worldwide ought to drive significant excess growth for the payments processor.
Few Headwinds
Visa also faces some potential pitfalls and challenges. The payments landscape is getting crowded with many digitally native options available to bypass Visa’s network. PayPal (NASDAQ:PYPL), Block (NYSE:SQ), Stripe, Alipay, and others may offer lower fees, better features, or alternative payment methods.
As it moves into new markets, it may also encounter greater regulatory and legal risks including antitrust investigations, data privacy laws, interchange fee caps, and taxation issues.
It may also suffer from cyberattacks, system failures, and fraud. Those, of course, are risks every business faces and Visa’s brand reputation isn’t likely to suffer much. It’s currently the most valuable digital finance brand globally.
Visa doesn’t need to worry about losses from non-payment or credit defaults. It focuses solely on payment processing and not lending, so it is not financially backing the growing consumer debt load.
The Bottom Line
Visa stock needs to grow at a 13% compounded annual rate to achieve a $1 trillion valuation in five years. Wall Street expects the payments processor to expand earnings by 14% annually. That’s slightly greater than it’s grown over the past five years.
Last August I suggested betting on Visa hitting $1 trillion was really a bet on the long-term growth in consumer spending and the U.S. economy. I concluded, “Overall, though, Visa seems an easy pick to hit a trillion-dollar valuation.” I stand by that assessment.
Five years might require some hard-charging growth, but it’s doable. It can certainly achieve it in the next decade. Visa is a stock you can safely buy and tuck away for a long time in your portfolio.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.