Shares down, but Visa still isn't attractive
Posted
Oct 24 2008, 12:39 PM
by
Kim Peterson
Rating:
Shares of Visa have fallen nearly 50% since May, and today are down 3% to around $47 a share. The Motley Fool says the stock, trading at 18 times forward earnings, it's "about as attractive as it's been since going public." Ha. I think the stock is as unattractive as it's ever been.
As the Fool points out, 18 times earnings isn't exactly cheap (today the stock is closer to 17 times earnings). MasterCard's at 12.6 times forward earnings, and American Express is at 9.38 times forward earnings. But the Fool says that Visa's valuation is tied to assumptions of big growth -- 22% annually over the next five years, analysts predict.
That's awfully optimistic, isn't it? Especially because, when times get bad, people put their credit cards away and refrain from major purchases. Sure, at 22% growth Visa will have solid returns. But what if growth doesn't hit that high? What if it hovers around 10% or 12%? In that case, returns will be "very meager at best," the Fool says.
Visa quarterly earnings are out next week, and in this volatile market anything could happen to the stock. The earnings will be closely watched as an economic indicator.
Visa shares were priced at $44 a share last March in the largest IPO in history. One of the company's biggest risks is a global recession, and, seven months later, the chance of that happening is much greater.
