A 'first look' at Mastercard; Kind comments from my readers

1) Credit-card giant Mastercard (MA) hit my radar screen twice recently...

First, I saw this post on social platform X. It outlines what an insanely great business Mastercard is, with stock performance to match.

Here's the post:

And then I saw this article in today's Wall Street Journal: How Visa and Mastercard Can Survive the Stablecoin Threat. Excerpt:

Stablecoins have a shot at being used in a lot of consumer payments. If they play their cards right.

Investors seem to be betting that stablecoins – digital tokens meant to represent a fixed amount of a fiat currency such as the U.S. dollar – could rapidly disrupt how we pay for things.

Following the Senate's passage of a stablecoin-regulation bill last week, shares of crypto companies such as Circle Internet Group and Coinbase Global surged. Shares of Visa and Mastercard, by contrast, are on track for their worst monthly performance in a couple of years.

But before the market runs away with this trade, it is important to understand what drives the consumer-payments business – and just how hard it is to dislodge cards.

I'm embarrassed that I haven't looked at Mastercard before, but better late than never!

Given the stock performance, you won't be surprised to see that revenue and net income have risen rapidly and steadily over the past two decades:

Mastercard is a free-cash-flow ("FCF") machine, with almost no capital expenditures ("capex"):

The balance sheet is also pristine – while net debt has risen over the past decade, it's tiny relative to the company's size and cash flows:

It's unusual to see net debt rising given the company's exceptional FCF, so let's take a look at capital allocation:

We can see that Mastercard has used its cash flow to make a handful of acquisitions, pay a tiny dividend (currently 0.5%), and buy back a ton of stock.

As a result, the diluted share count has dropped by 29% since 2010:

In summary, Mastercard appears perfect in every way. But there's one teeny, tiny little problem: Everyone else agrees, so the stock's valuation is very high.

As of yesterday, the company has a $506 billion market cap and, adding net debt, a $517 billion enterprise value. It's trading at 17.8 times trailing revenue, 28.8 times trailing earnings before interest, taxes, depreciation, and amortization, and 39.1 times trailing earnings.

Consensus analyst estimates for this year are $15.92 per share, so the stock is trading at 34.8 times current-year earnings.

Given the quality of the business and its continued strong growth prospects, I wouldn't say the stock is overvalued... but it's certainly fully valued. And I'm not in the business of buying fully valued stocks, so I'm going to watch and wait.

Maybe we'll get lucky and investors will freak out about the stablecoin risk (outlined in the WSJ article above), which would mean a chance to buy the stock at a discount.

If that happens and my team and I decide to recommend it, as always, our Stansberry's Investment Advisory subscribers will be the first to know. (You can learn how to become one by clicking here.)

2) My mayoral race ended last night, so my life will be a lot less stressful going forward...

I also want to thank my many readers who sent me words of support and encouragement over the past seven months! Here are some just from yesterday:

• Jeff D.: "I want to congratulate you for running for mayor! Both my wife and I have been in local political office. I believe that most everyone should run for an elected office to better understand the system of governance, how electoral politics works, and what it takes to commit time, effort, and money to the task. Simply by running Whitney, you have fulfilled an important civic duty. This is what our country is based on."
• Dave L.: "Congratulations – I see you out-polled Paperboy Prince. NYC's loss is Stansberry's gain (or retention, I guess). Perhaps your foray into the political rough and tumble will bear fruit in the future. We need more principled, circumspect leaders in our government."
• Tony P.: "Politics is an especially difficult arena, especially for a capitalist! Glad you got out your message. If we elected people based on their intellect, we would have most of the current politicians seeking other work. Keep on fighting."
• John D.: "Regardless the results, the world belongs to the gladiators who dare to enter the ring! Glad you ran."
• Sheryl M.: "You would have been a GREAT mayor. Try again, one of the problems in our system is that we can't attract more people like you to run."
• Alliance Member Jim H.: "I just wanted to commend you for your run in the NYC mayor's race. I don't live in New York and am more conservative politically than you. But I watched your video and would have voted for you today if I could have because your values and priorities apparently align with mine... Besides your investing expertise, you are honest, articulate, and have common sense, all of which I respect. And more than anything, I feel like we would be able to agree to disagree on certain issues and still remain friends..."
• Bruce K.: "Of all the people in – or attempting to get in – you far and away appear to be the most honest and qualified to get a political job. I'm hoping very much you win and then move up the line. I'm hoping to vote for you for president of the USA someday. Your honesty and values are most refreshing. Go Whitney!!!"

Thank you all for your kind words!

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.