Should I buy Mastercard shares after the Q3 results?

Mastercard Incorporated (NYSE: MA) reported better-than-expected third-quarter results this Thursday, and CEO Michael Miebach said that consumer spending remains resilient and cross-border travel continues to recover.

Mastercard continues to improve its position in the market

Mastercard reported better-than-expected third-quarter results this Thursday; total revenue has increased by 15.5% Y/Y to $5.8 billion, which was more than expected, while the GAAP EPS was $2.68 (beats by $0.10).

Through the third quarter, volume trends steadily improved each month, driven by continuing gains in cross-border travel; still, it is important to say that the pace of growth slowed from Q2 levels mainly due to economic uncertainty. CEO Michael Miebach said:

Consumer spending remains resilient and cross-border travel continues to recover. We will continue to monitor impacts related to elevated inflation and other macroeconomic and geopolitical risks.

Earnings per share were up 22% compared to a year ago, and during the quarter, Mastercard repurchased $1.6 billion worth of stock and an additional $505 million through October 24, 2022.

The company’s management expects another EPS beat in Q4 despite concerns that a global recession could slow transaction volume and subsequently reduce revenue.

Mastercard’s business model is relatively resilient versus recessions, as demand for payment services isn’t overly cyclical, and the company continues to have strong cash flow, which remains an important figure supportive of its current dividend payout.

Mastercard continues to improve its position in the market, and the company recently reported plans to launch a tool that will help banks find and block suspicious transactions from crypto exchanges.

While the crypto industry is experiencing a tough downturn, Mastercard continues to deepen its involvement in the emerging space, and this move could attract many new clients.

Now let’s take a look at fundamentals. With a price-to-earnings (or “P/E”) ratio of 32, Mastercard is on the pricier side of the market, given that many companies on the U.S. stock market currently have P/E ratios under 15.

According price-to-sales ratio (market capitalization/revenues), Mastercard shares are trading at 15.9, which is higher than the price-to-sales ratio of Visa, Inc. (NYSE: V), which is trading at a P/S of 12.8.

Mastercard trades at more than twenty times TTM EBITDA, the book value per share is around $6, and with a market capitalization of $300 billion, shares of this company are not undervalued.

To justify its current valuation, Mastercard would need to produce outstanding growth well in excess of the market, which will not be easy.

Technical analysis

Mastercard shares have recovered from their lows reached in the second week of October, and for now, “bulls” control the price movement.

The price has also moved above the 10-day moving average, which is certainly a positive sign; still, investors should keep in mind that the risk of another decline still persists.

The current support level stands at $300, while $340 represents the first resistance level. If the price falls below $300, it would be a “sell” signal, and we have the open way to $280 or even below.

On the other side, if the price jumps above $340, the next target could be $350.

Summary

Mastercard Incorporated reported better-than-expected third-quarter results this Thursday, and CEO Michael Miebach said that consumer spending remains resilient and cross-border travel continues to recover. Despite this, Mastercard shares are not undervalued, and to justify its current valuation, Mastercard would need to produce outstanding growth well in excess of the market, which will not be easy.