Mastercard’s Chart Looks Great, But Is The Valuation Just As Attractive?

Mastercard’s Chart Looks Great, But Is The Valuation Just As


Mastercard’s chart isn’t perfect…But it’s pretty close.

After basing between around $285 and $315 a share during June and July, Mastercard (NYSE:) broke out on above-average volume in early August.

The breakout pushed shares to around $330, where they took a breather for a little over a week. Then, MA embarked on an 11-session stretch with just one daily loss—it took shares to all-time highs of nearly $370 a share.

The 2+ week period took shares well into overbought territory on the RSI, so shares were due for a pullback. And with the general market, which was also due for a pullback, dipping over the past three trading sessions, it wasn’t surprising to see MA follow suit.

Now, Mastercard is trading right around the breakout point of the June/July base, just above the 50-day moving average. Yesterday, it traded into Friday’s range, holding the lows from the previous session.

This is a great buying opportunity because you can get in around $330 and place a stop-order around 10-15 points below, just under the 50-day moving average. That would give you a downside of just 3-5%.

My only bone to pick on the chart is the above-average volume on the first day of the dip. It was actually good to see higher volume on Friday, as you want high volume on a reversal day, even if the stock closes down.

But overall, it’s a great-looking chart. There’s a good chance MA holds around $315-330, and your downside is very limited if it doesn’t. And there is very little resistance overhead – particularly if shares can break above $370.

Mastercard’s chart is looking great, but how are the company’s prospects?

Tough Q2… But Better Days Ahead

Mastercard’s came in at $3.34 billion, beating estimates of $3.25 billion, but down 18.9% YoY. Adjusted EPS were $1.36, beating estimates of $1.16, but down from $1.89 in the year-ago quarter.

There was good and bad in the report.

The good:

Mastercard’s “other revenue” category was up 12-14% (on a constant-currency basis). This category includes cybersecurity, data analytics, and other services. With the coronavirus causing a massive shift to e-commerce and contactless transactions—more on that later— Mastercard is capitalizing on the trends.

The bad:

COVID-19 killed international travel, which in turn, killed Mastercard’s cross-border volume. While it improved progressively through Q2, it ended the quarter down 45%.

On the plus side (relatively speaking), cross-border volume was down 35-37% each week in August.

2020 is a Blip on the Radar

Mastercard is trading at just under 50x forward earnings, which sounds expensive until you consider the company’s recent history of high-growth and projected return to high-growth in the near future.

Mastercard’s revenue grew 20% and 13% in 2018 and 2019, respectively.

And Mastercard is projected to record revenue growth of 19.2% in 2021 and 15.2% in 2022. EPS is expected to grow even faster, at 30.2% in 2021 and 21% in 2022.

The Trends Are Mastercard’s Friend

On its Q2 earnings call, President Michael Miebach said:

“According to our latest COVID-19 consumer impact study, over 70% of consumers plan to continue or increase their online purchasing, and approximately 60% believe they will use less cash even after the pandemic subsides. And we are providing digital-first solutions that leverage our tokenization and other digital technologies to meet these changing needs.”

COVID-19 is pushing the world towards a more cashless society, and Mastercard is a beneficiary.

The pandemic is also pushing people and businesses towards contactless transactions, which Mastercard noted “represented 37% of in-person purchase transactions, up from 28% a year ago.” MA is well-positioned to capitalize on this trend as well.

Mastercard is Recession Proof…In a Way

Obviously, Mastercard has seen declining revenues as a result of the pandemic-related economic contraction. But still, this is an unfavorable environment for Mastercard, all things considered, and the numbers still aren’t that bad.

And now is also a good time to point out how Mastercard’s business is recession-proof:

The company only acts as a payment processor, not a lender. So Mastercard is somewhat immune to the rising defaults that often occur during a recession.

The Final Word

With Mastercard, it’s important not to miss the forest for the trees. The company’s long-term outlook has only improved since the onset of the pandemic. And the short-term struggles, which are beginning to abate, can’t threaten a strong company like Mastercard.

When you combine the great-looking chart and the excellent fundamentals, Mastercard is a strong buy.

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