Should you buy Mastercard stock?

Mastercard stock analysis. MA stock.
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Mastercard has been of the best performing stocks over the last 20 years. Since its IPO back in 2006, its share price has risen almost 8000%. And the company also pays out a steadily increasing dividend.

At the current price, Mastercard has a market cap of 358 billion dollars. It’s got 7 billion of cash and investments and 15.3 billion of long term debt which means the enterprise value is 367 billion.

Revenue over the last 12 months was almost 23 billion. That might seem a little low compared to the market cap but Mastercard has an incredibly high and consistent operating margin of 55% and a net margin of 42%.

As a result, net income over the last 12 months is 11 billion with roughly the same in free cash flow and 13.2 billion in ebitda.

So right now Mastercard is valued at 16 times revenue, 37 times earnings and 28 times ebitda. That’s slightly above the long-term average of 30 times earnings.

In addition, Mastercard doesn’t require a lot of capital to be reinvested, capex is between $200-$400 million a year.

With so much free cash flow being generated, Mastercard is able to pay a small dividend and buy back a decent amount of shares.

Over the last decade, the number of shares outstanding has reduced by 20% as management has bought back shares every year even 2008.

So Mastercard is clearly a premium stock but with that comes a premium valuation.

Let’s assume the company grows its revenue at the historical average of 12% for the next 10 years then operates with a 40% net income margin. Net income in 10 years time would be roughly 28 billion and a 30 times multiple would put the valuation at 840 billion. Include dividends and the investment return is a little over 9%.

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