Visa (V) stock was long overdue for a big relief rally, and it appears to finally be getting one, now up around 14% from its recent bottom of around $190 per share. The bounce-back from Visa’s bear market moment was quick, and if you flinched, odds are you missed the ricochet.
With continued pressure facing the incumbent payments players, it may be wiser to take a raincheck on Visa stock, as the same pressures that weighed a week ago are still present. BNPL (Buy Now Pay Later) firms could eat away at the handsome margins enjoyed by dominant credit card companies like Visa. Meanwhile, consumer spending uncertainties are another hazy cloud that makes Visa a tough hold, going into 2022.
After doing nothing year-to-date, V stock has given earnings a chance to catch up. Still, real headwinds could continue to act as a drag on the credit card giant as it grapples with one of the first real tests to its dominance in the payments space.
Undoubtedly, there’s a ton of economic profit to be had in payments. With hungry fintech firms willing to settle for far lower margins in today’s low-rate environment, Visa had better brace for further impact. In any case, I think it will be increasingly more difficult for Visa to maintain its impressive margins in the face of new rivals. As such, I am bearish on Visa stock at around $216 and change per share. The valuation remains too steep for me to get behind, and I think the recent bounce is overdone.
Visa: A Proven Leader, but Stiff Competition in Payments Tech Space
Payments are long overdue for disruption. With intriguing innovations in the payments space quickly gaining popularity, Visa not only needs to pivot to adapt, but it needs to go the extra mile to bring the fight to its much smaller peers.
In any case, higher investment and a potential race to the bottom in terms of fees appear like an unstoppable downward pressure point on operating margins.
Visa is a company that has been innovating at a solid pace. However, its own Installments service doesn’t appear to be a magic solution. BNPL products could weigh on the amount of credit card debt consumers accumulate, even if consumer spending trends remain favorable, moving forward.
At writing, Visa stock trades at a pricy 37.90 times trailing earnings and an equally hefty 19 times sales. Such a valuation doesn’t leave much in the way of error, especially in the face of great macro uncertainty and some rivals growing at a scarily fast pace in payments.
Could Crypto’s Growing Popularity Weigh on Visa Long-term?
Indeed, continued adoption of cryptocurrencies like Bitcoin (BTC-USD) and Ethereum (ETH-USD) could also become a growing thorn in the side of some of the traditional payment plays.
Similarly to Visa Installments, the firm’s BNPL answer to rising competition in the growing popularity of interest-free financing for small consumer purchases, Visa has a crypto offering of its own. The company has an upcoming Coinbase (COIN) debit card that allows its users to spend either cryptocurrencies or U.S. dollars while also earning rewards.
We all know and love those cash-back Visa cards. With the Coinbase Visa debit card, users can earn crypto rewards. Indeed, the card is as intriguing as it sounds, but it will likely represent just a drop in the bucket for the credit-card giant.
Although crypto is nowhere close to replacing traditional payment methods, the disruptive asset is worth watching.
Wall Street’s Take
According to TipRanks’ consensus analyst rating, V stock comes in as a Strong Buy. Out of 18 analyst ratings, there are 13 Buy recommendations.
As for price targets, the average Visa price target is $273.46. Analyst price targets range from a low of $240.00 per share to a high of $305.00 per share.
The Bottom Line on V Stock
Visa is atop the payments industry, and the lead is arguably the company’s to lose. All of the innovation in the payments space will pave the way for disruption.
Even if Visa can out-innovate its opponents, it’s going to be harder to take share. While it does have networking effects, the allure of up-and-comers and consumer distaste for its history of commanding high fees could work against Visa in the future.
Although Visa has less to worry about over the near future, the longer-term trend remains uncertain, given the profound magnitude of change the payments space is bound to experience throughout the decade. With such a rich valuation, it’s too tough to get behind Visa stock, especially after its recent relief rally.
Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.
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