Payments technology juggernaut Visa Inc. (V Quick QuoteV - Free Report) boasts solid fundamentals suggesting promising long-term growth. So far in 2024, its stock has climbed 20%, trailing the financial transaction industry’s average growth of 21.6% and the S&P 500’s impressive 27.4% return.

Notably, peers like Mastercard Incorporated (MA Quick QuoteMA - Free Report) and American Express Company (AXP Quick QuoteAXP - Free Report) have outpaced Visa with gains of 24.1% and 61.3%, respectively. These figures underscore Visa's steady performance but highlight stronger momentum among competitors.

 YTD V Stock Price Performance Comparison

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The Visa stock is currently trading just 1.6% below its 52-week high of $317.42, prompting investors to consider whether now is the time to lock in gains or hold for further upside. While this proximity to its peak often signals profit-taking opportunities, a deeper analysis of Visa’s growth drivers and challenges is crucial before making a decision.

What’s Driving Visa Growth?

Visa maintains a dominant position in the U.S. payments market, controlling 47% of all U.S. credit card balances and 52% of the credit card market. In fiscal 2024, the company reported net revenues of $35.9 billion, reflecting 10% year-over-year growth, while its adjusted EPS surged 15% to $10.05. Strong metrics like an 8% increase in payments volume, a 10% rise in processed transactions (233.8 billion), and a 15% boost in cross-border volume on a constant-dollar basis highlight Visa’s robust operational performance.

The company’s financial health remains strong, evidenced by $6.7 billion in operating cash flow and $6.4 billion in free cash flow for the fourth quarter of fiscal 2024. Despite underperforming the broader market year to date, Visa’s stock now appears to better align with realistic expectations for future cash flow growth, positioning it for sustained long-term performance.

Visa's network effect continues to fuel its growth, as increased consumer and business adoption strengthens its ecosystem, enabling the company to generate more revenue and reinvest in its network. This cycle supports sustainable long-term growth through strategic marketing and promotions.

Visa is also a profitability leader, consistently enhancing shareholder value. In the most recent quarter, Visa returned $6.8 billion to shareholders through $5.8 billion in share buybacks and $1 billion in dividends. The company had $13.1 billion remaining in authorized repurchase funds as of Sept. 30, 2024. Additionally, Visa announced a 13% hike in quarterly dividends to 59 cents per share on Oct. 29, 2024, yielding 0.76%, outpacing the industry average of 0.67%.

Favorable Earnings Estimates for Visa

The Zacks Consensus Estimate for Visa’s fiscal 2025 and fiscal 2026 EPS implies an 11.3% and 13% uptick, respectively, on a year-over-year basis. Similarly, the consensus mark for fiscal 2025 and fiscal 2026 revenues suggests a 9.5% and 9.9% increase, respectively. It witnessed one upward estimate revision in the past week for fiscal 2025 EPS against no movement in the opposite direction. The company beat earnings estimates in each of the past four quarters, with an average of more than 3%. This is depicted in the figure below.

Visa Stock Overvalued

From a valuation perspective, Visa is trading a bit higher than the industry. Going by its price/earnings (P/E) ratio, the company is trading at a forward earnings multiple of 27.22X, higher than its five-year median of 26.88X and the industry average of 25.21X.

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Meanwhile, Mastercard and American Express are currently trading at 32.71X and 20.06X, respectively.

Visa’s Headwinds

Visa's business faces challenges from rising expenses and potential regulatory hurdles that could impact its short-term growth. Ongoing legal battles, including a major antitrust lawsuit filed by the U.S. Justice Department in September, could result in financial liabilities and increased competition. Despite this, investors took advantage of the stock price dip to acquire more shares. The company is also facing a lawsuit over interchange fees in the U.K.

Additionally, the Credit Card Competition Act of 2023, aimed at fostering more competition in the credit card market and reducing costs for merchants, could slow growth for both Visa and Mastercard. This act seeks to break the duopoly these companies currently hold, excluding the Eastern Hemisphere, where UnionPay dominates. The impact of changing political dynamics on the companies' operations will unfold in the coming months.

Don’t Rush to Buy Visa Stock Now

Visa's strong market position and financial stability make it an attractive stock to retain for current investors. The ongoing shift toward cashless payments is expected to further strengthen Visa's expanding network. Additionally, its shareholder-friendly initiatives, cybersecurity measures and impressive profitability enhance its attractiveness.

Currently, it trades below the Wall Street average price target of $327.09 per share, indicating a 6.09% upside from current levels.

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However, prospective buyers may consider waiting for a more favorable entry point, considering the stock's elevated valuation, and keeping an eye on the ongoing regulatory challenges. Additionally, monitoring consumer spending trends, which show a mixture of resilience and caution, is essential. These trends reflect the overall health of the economy and directly influence Visa's revenues from transaction fees.

Visa stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.