
Since its initial public offering in March 2008, Visa's stock has completely ruined the average market returns. The total return of Visa has been over 1,700%, compared to only about 340% for the S&P 500.
The move from physical cash to digital exchange of money has been made much more bearable by Visa. Riding a huge secular growth trend like this certainly helps with investment returns. In addition, there's a little more to the story, as few digital payments and fintech investments have done nearly as well. For a long time, Visa has been a good capital allocator, and that's been the key to the stock's success.
Visa's ROIC has been good and continues to improve.
With its ROIC, Visa's ROIC has been exceptional for years, according to investor researcher New Constructs. New Constructs calculates ROIC as NOPAT divided by average investment capital.
What's truly amazing is that Visa's ROIC has remained exceptionally high in good times and bad. Even during the worst of the pandemic, it averaged over 20 percent in ROIC. And in the bear market of 2022, and during constant worry over global recession in 2023, Visa's ROIC has actually chugged higher and now sits at record levels.
The cost of capital rose in the last year as the U.S. Federal Reserve has rapidly increased interest rates.
Mastercard and Visa, both of which are primary competitors, serve as a digital railway for the movement of money, part of the infrastructure of the digital economy. With the world's most technologically efficient data centers, computing hardware, and private telecom networking, Visa is able to process tens of billions of transactions annually.
The advantages of a network like this are that it's more efficient as it facilitates more transactions. Visa shareholders have been enthrallened by the worldwide fight against cash and the move to digital transactions.
Visa has been able to invest in other services because its cash inflow has increased. The data security sector has been a solid source of growth, with investments and small acquisitions of financial software start-ups.
The blockchain and cryptocurrency market's emergence during the pandemic was often cited as a long-term risk to Visa's global money-movement network. Crypto will be susceptible to a black eye due to numerous scandals, which will take many years to recover. Nevertheless, the underlying blockchain technology is promising, and Visa has been making investments here as well to try to future-proof its empire.
Visa has done an exceptional job investing effort. Will it last forever? Why or why not? ROIC is, after all, a backward-looking metric that is not always indicative of future returns.
Since 2016, Visa's CEO, Alfred Kelly Jr., moved over to executive chairman of the board, making way for the new CEO, Ryan McInerney. Chris Suh, CFO, has been announced as the new head of the company. The ROIC assessment shows that management's capacity to make good investment decisions is always worth keeping in mind for any company.
The world continues its expansion of digital systems, including currency and financial transactions, he said. This bodes well for Visa's ability to continue to generate more cash from its investments over time. Visa stock could remain a market-beating stock for many years to come.