Visa (NYSE: V) shares an effective duopoly in the payment processing market with Mastercard (NYSE: MA). These two companies have been growing for years as consumers increasingly opt for cards over cash, a move that has benefited from the growth of online retail. Visa in particular is quite interesting right now. Despite being near 52-week highs, the stock actually looks quite cheap.

What does Visa do?

Both Visa and Mastercard have computer systems and networks in place that permit secure electronic payments. That's the crux of the business. However, the real strength of Visa and Mastercard is their ubiquity. Just about every retailer, restaurant, and online store uses their systems. You know that because the Visa and Mastercard logos are, virtually, everywhere. But the key is that these two companies are financial intermediaries.

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Visa and Mastercard simply provide the pipes that retailers and customers use to exchange funds. That's a picks-and-shovels approach that allows these payment processors to collect a small fee from every transaction they facilitate. But add up all of those small fees and the revenue generated gets very large. To put a number on that, in the third quarter of 2024 Visa processed 59.3 billion transactions, up 10% year over year.

Visa's top line also rose 10% in the quarter, hitting $8.9 billion. Earnings came in at $2.42 per share, up 12%. This is, actually, just par for the course. During the past decade, annual revenue growth has averaged about 10% a year with earnings up roughly 15% a year. Visa is really a growth stock. To be fair, Mastercard's long-term performance is fairly similar, so it's a growth stock, too.

Visa is trading near all-time highs

Investors clearly know how attractive Visa is, given that the stock is trading near its 52-week and all-time highs. Normally that would hint at a stock that is expensive, but maybe not in this case. Using traditional valuation metrics, Visa actually appears cheap.

The stock's price-to-sales ratio is about 16 versus a five-year average of 17.6. The price-to-earnings ratio is currently about 29 compared to the longer-term average of 34.1. The price-to-cash flow ratio is 17 while the five-year average for that metric is 19.5. Even the dividend yield, a less traditional valuation tool, is near the high end of its historical range, suggesting the stock is cheap. The only valuation tool that indicates a premium price is price-to-book value, which is 14.5, versus a long-term average of 13.5.

To continue the comparison with Mastercard, Visa looks more attractively priced, overall. Mastercard's price-to-earnings and price-to-cash-flow ratios are below their five-year averages. But its price-to-sales and price-to-book-value ratios are above the longer-term average. And its dividend yield is more middle-of-the-road. So Visa looks cheap relative to its own history and when compared to its most notable peer.

Visa is worth a look for GARP investors

Visa is a growth stock, but there's a variant of the growth theme known as growth at a reasonable price, or GARP. Given Visa's history of growth and its attractive valuation today, the stock looks like a good option for investors who want that very combination of growth and value. The only area where it falls short is dividend income, given the tiny 0.7% yield. However, the dividend has increased at a heady annualized rate of 18% a year during the past decade. So dividend growth investors might find Visa desirable, too.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

Visa Looks Cheap Even Though It's Near 52-Week Highs was originally published by The Motley Fool