Warren Buffett currently owns approximately 8.3 million Visa (V) shares worth roughly $3 billion. The legendary investor is very selective about the companies he invests in. And so far, Buffett isn’t selling Visa shares.
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So, should you buy Visa stock now after its staggering 2,320% growth since its initial public offering in March 2008?
The Bigger Picture
Buffett always likes and invests in businesses with strong economic moats, and there’s no doubt Visa has a solid competitive advantage that can last for years, if not decades. Its growth since the IPO says it all. From $12.7 billion in fiscal year 2014 to $35.9 billion in 2024, Visa’s revenue shows no signs of slowing down thanks to the rise of cashless transactions. And since cash is still used even in some developed economies, Visa has room to increase its market share for digital payments.
Visa controls at least half of the U.S. credit card market, while its rivals Mastercard, Discover Financial Services and American Express share the rest. Since more than half of its credit transactions happen on its network, Visa dominates the payment industry. With more than 4.7 billion active cards accepted by over 130 million merchants globally, the company’s powerful network effect is becoming more valuable to stakeholders. To compete with such an established company is nowhere near possible.
Not to mention how profitable Visa is. The payment company’s operating margin has averaged 66% in the last five years. And in the previous fiscal quarter, it turned 53% of its revenue into free cash flow.
The dominant market share, a powerful network effect and an incredibly profitable business model make Visa a dominant force in the payment industry.
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Is It Too Late To Invest In Visa?
Visa has been a stellar investment for long-term investors, delivering impressive returns over the years. The company has grown its market cap to over $680 billion, which could mean the days of explosive growth are likely behind it. While Visa is still a key player in the payments industry, its upside potential is somewhat limited compared to its earlier years.
Valuation is a key consideration for investors. Visa currently trades at a price-to-earnings (P/E) ratio of around 35, which is still high but isn’t outrageous given its historical averages. Wall Street analysts expect Visa’s earnings per share (EPS) to grow at an annualized rate of 12.7% over the next three years, consistent with its past five-year average of 12.8%. This suggests Visa is still on a steady growth trajectory.
Buffett first bought Visa shares in 2011, when they were trading at around $40 per share. So, is it too late to buy Visa stock? Absolutely not. While Visa’s current stock price ($355 at the time of this writing) may seem way too high to buy, the stock still has room for growth. Since you can’t time the market, you can dollar cost average Visa to lower your risk and maximize returns.
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This article originally appeared on GOBankingRates.com: Warren Buffett Invests In Visa — Should You?
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