Investors love to follow the portfolio moves of Warren Buffett, given his incredible track record compounding capital as CEO of Berkshire Hathaway. There are dozens of stocks the conglomerate owns.
One such business dominates the credit card space, and the Oracle of Omaha owns almost $3 billion worth of its shares. Should you buy this top financial stock, which has climbed 2,320% since March 2008, right now?
Latest financial results
Visa (V 1.24%) is currently the 17th largest holding in Berkshire’s massive $300 billion portfolio. But that relatively small size shouldn’t mask the fact that it continues to report strong financial results.
For its 2025 first quarter (ended Dec. 31), Visa grew revenue 10% year over year to $9.5 billion. This was driven by more payment volume, transactions, and 300 million net new cards (compared to 12 months before) in the ecosystem. In particular, cross-border volume stood out, up 16%.
The bottom line is also trending in the right direction. Adjusted earnings per share (EPS) rose 14% versus the year-ago period. It’s not unusual for Visa to regularly post double-digit revenue and profit growth.
The big picture
Buffett loves to own high-quality businesses. There’s no doubt that Visa falls into this category.
Its growth has proved to be durable. In the past decade, there was only one year that saw a sales decline — in fiscal 2020 during the pandemic. Besides that, sales gains exceeded more than 10% in most of the years.
The rise of cashless transactions is a long-term secular trend that benefits Visa. Not only does the convenience of credit cards and digital payments take share from cash, but economic growth also leads to greater spending activity over time. The company gains as more volume goes through its platform.
As I alluded to earlier, the company does not struggle when it comes to profitability. This is one of the most financially sound enterprises on the planet.
In the last five years, Visa’s operating margin has averaged a ridiculous 66%. And during the last fiscal quarter, it was able to turn 53% of revenue into free cash flow.
The cash register continues to ring with Visa. That’s why it’s able to return billions of dollars each quarter to shareholders via dividends and buybacks.
The company has a wide economic moat that’s supported by the presence of powerful network effects. It has 4.7 billion active cards that are accepted at 130 million merchant locations across the globe. As the network expands, it’s constantly becoming more valuable to all stakeholders.
The system is also so entrenched in the fabric of our economy that it’s almost impossible to disrupt. Moreover, even with the rise of fintech platforms, its ability to grow volume, revenue, and profit hasn’t been deterred.
Is Visa a bargain?
The ideal situation is to buy a great business at a cheap valuation. Not only can further earnings growth fuel returns, but so can an improving multiple.
Unfortunately, I don’t believe Visa presents such an opportunity today. Yes, its profit is sure to be higher five to 10 years from now. But the valuation is not at a bargain level.
After the stock’s 29% rise just in the past six months, it now trades at a forward price-to-earnings ratio (P/E) of 30. That’s the highest valuation multiple in at least the last two years. It doesn’t look compelling given Wall Street analyst projections of EPS increasing at an annualized pace of 12.7% over the next three years.
The current valuation isn’t so egregious that it’s forcing Buffett and his team to sell the stock, although investors looking to buy shares now should probably wait for a better entry point.
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Visa. The Motley Fool has a disclosure policy.
