Spotlight: Unicorn Stock Is Envy of Fintech

Earlier in the week we covered a stock that had both impressive revenue growth and a handsome dividend, a rare combination that is hard to find in any industry. The stock was United Healthcare and it had a ten year history of growing year-over-year revenues in each quarter.

That inspired us to find other companies that are also growing yet pay a handsome dividend. After quite a search we uncovered one giant company that both growth and value investors will find enticing.

Key Points

• One financial technology company has an almost perfect track record of growing revenues over the past decade.
• While the top line, bottom line and cash flows are all pristine, valuation is extended at this time.
• On a dip, key financial ratios and multiples will start to look a whole lot more attractive for new buyers.

Extraordinary Top Line Growth

We dug into Visa’s financials over the past ten years and, remarkably, the stock has an extraordinary history of rising in each and every quarter on a YoY basis with one exceptional period, COVID. When lockdowns took effect, Visa was a big loser but sliding revenues only last for a temporary period and soon the top line bounced back with a vengeance.

To give you a sense of the growth over the past decade, in 2014 revenues were just $3.1 billion whereas in the most recent quarter they were $8.6 billion.

One of the most remarkable aspects of Visa’s income statement is that its margins are sky high and earnings before interest and taxes have consistently been in the billions. A decade ago, EBIT was $2.0 billion whereas last quarter they came in at $5.9 billion.

Unsurprisingly, those massive profits have translated to huge cash flows which in turn has resulted in an attractive dividend.

Why Buy Visa?

Beyond Visa’s pristine income statements, it has a perfect Piotroski Score of 9 and has raised its dividend for the past 16 years consecutively. Currently, the yield is a modest 0.76%, equating to $2.06 per share annually. With a low payout ratio of just 21%, the upside for income-seekers is high.

If there a major drawback for new investors buying Visa now it’s on the valuation front. While analysts are modestly bullish with a price target of $296 per share, a discounted cash flow forecast paints a more pessimistic picture with fair value sitting at $251 per share.

Nonetheless, with cash flow generation and profitability exemplary as well as growth and price momentum in its favor, Visa has a whole lot going for it. With a pullback the relative value will start to look more appealing and a compression in the 31.4x price-to-earnings ratio will be more palatable for new buyers.