Why MasterCard, Up 64% in 2013, Isn’t Done

Up there in the thin air of a momentum market, where the likes of TripAdvisor (TRIP), Facebook (FB) and Tesla Motors (TSLA) fly, it’s shocking to find an old-school financial company, MasterCard (MA).

MA Chart

MA data by YCharts

MasterCard is hardly a baby. It’s a $96.28 billion market cap company well past an adolescent growth spurt. Yet its share price is up 64% this year, and investors now are paying almost as much on a forward price-to-sales basis for MasterCard shares as they do for some really popular newbies.

MA PS Ratio (Forward) Chart

MA PS Ratio (Forward) data by YCharts

That’s a record-level sales valuation for MasterCard. Its forward PE ratio of about 31 is nearing record levels also.

MA PE Ratio (Forward) Chart

MA PE Ratio (Forward) data by YCharts

What’s wrong with this picture? Is MasterCard in the wrong place? Or, could its market valuation be justified, and the only thing suspect about the situation is that it’s up there with stocks that trade on hype and hope?

First, MasterCard warrants a higher valuation than normally seen in huge companies, at least at the moment. MasterCard collects fees on credit card transaction instead of lending money. As YCharts wrote last February, that’s a booming business that MasterCard is well positioned to profit greatly from.

The company recently announced an 83% rise in its dividend (although it’s still a less than 1% dividend yield), a major stock buyback plan and a 10-for-1 stock split. Assuming MasterCard hits fourth quarter targets, revenues are forecast to grow about 12% next year and earnings about 18%. While there may be a case to be made for MasterCard shares as overvalued, there are a lot of reasons to like the shares.

Secondly, one needn’t worry that MasterCard’s reached this high valuation because all mega-caps are jacked up. Sure, shares of Visa (V) are also well up for similar reasons. But only a half dozen mega-cap stocks trade above MasterCard’s valuation. Setting the YCharts Stock Screener finds that almost half of the 64 mega-cap companies in the database trade at forward price-to-earnings ratios of less than 15, which has been a pretty average valuation for the market in recent years.

These include shares from a variety of sectors and include popular investments like Apple (AAPL), Citigroup (C), Exxon (XOM), Microsoft (MSFT) and GlaxoSmithKline (GSK).

AAPL Chart

AAPL data by YCharts

On an historic basis, the S&P 500's average price to earnings ratio remains at a modest level.

S&P 500 Cyclically Adjusted Price-Earnings Ratio Chart

S&P 500 Cyclically Adjusted Price-Earnings Ratio data by YCharts

That sharp rise at the end of the line above reminds us that it is, actually, prudent to worry about whether the stock market is entering dangerous bubble territory. But there are better ways to monitor this than tracking the gains of an individual share. YCharts outlined several stock market correction metrics worth watching in a piece earlier this month.

As for MasterCard shares? That beautiful rise should entice any investor to unleash some financial advisor tools.

Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at editor@ycharts.com. Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.

Read more articles about: Company Analysis  stocks that look pricey   

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