The companies dominating the payment space, namely Mastercard Incorporated (MA - Free Report) , Visa Inc. (V - Free Report) and Global Payments Inc. (GPN - Free Report) , hit their respective 52-week highs of $303.53, $191.14 and $186.67 on Jan 2, 2020.
In the past year, shares of Mastercard, Visa and Global Payments have surged 67.5%, 49.2% and 88.1%, respectively, compared with the Zacks Financial Transaction Services industry’s rise of 50.3%. Another player in the same space is American Express Co. (AXP - Free Report) , which has gained 34.7%.
The industry has also outpaced the S&P 500 composite’s growth of 30.7% in the same period.
This upsurge is likely to have been driven by investors’ optimism over the business prospects of these companies involved in payment processing as recent data on holiday sales showed the growing trend of online purchases.
Since online purchases entail the rampant use of cards/mobile/digital/wearables/online and other new-age payment methods, the industry players like Mastercard, Visa and Global Payments with their vast payment network processing services present across the globe stand to benefit greatly.
Strong Online Sales Numbers
According to Mastercard, e-commerce sales hit a record high this year with more and more U.S. shoppers making their purchases online. Per Mastercard’s data tracking retail sales from Nov 1 through Christmas Eve 2019, e-commerce sales consisted of 14.6% of total retail and rose 18.8% year over year. Last year, e-commerce sales grew 18.4%.
Also, the Census Bureau of the Department of Commerce in its latest report announced that the estimate of U.S. retail e-commerce sales for the third quarter of 2019 was $154.5 billion, reflecting 5% improvement sequentially and 16.9% growth year over year. E-commerce sales in the third quarter accounted for 11.2% of total sales.
These solid online sales numbers led by the fast-expanding e-commerce trend bodes well for the payment companies. And the momentum is likely to continue in the coming years. Per Statista, e-commerce share as a percentage of total retail sales in the United States has gone up from 5.8% in 2013 to 9% in 2017 and is further expected to bump up to 13.7% by 2021.
The Zacks Financial Transactions Services, which largely represents the payments industry has jumped 50.3% in the past year compared with the Zacks S&P 500 composite’s rise of 26.3%.
Will These Stocks Continue to Soar Higher?
Visa, Global Payments and Mastercard with their respective forward 12-month price-to-earnings ratio (F12M P/E) of 29.55X, 31.86X and 39.46X are all overpriced when compared with the F12M P/E ratio of 28.24 X for its industry. However, overvaluation is quite natural for each of these stocks as investors’ focus (or willingness to pay premium) contributed to this inflated value.
Albeit these stocks reached a 52-week high yet that doesn't necessarily mean that they are on the verge of an imminent declineFactors, such as robust sales, surging profit levels, strong earnings growth prospects and acquisitions that encouraged investors to bet on these stocks could keep them motivated given that there is no tangible negative. In other words, this upside might be consistent.
Among the stocks stated above, Global Payments carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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