Mastercard (MA) Stock Could Be 49% Undervalued Despite Wallet Pay Launch

Mastercard has delivered strong multi year gains for shareholders, yet the recent pullback leaves a clear question for you as an investor. Is the current share price still in line with the returns the business earns on the capital it deploys into payments and related services?

• Over the past 5 years, Mastercard has returned about 63.0%, which puts real weight on whether those past rewards are backed by the quality of the returns generated on its capital base.
• New efforts like Mastercard Wallet Pay and the firm’s role in projects such as Circle’s Arc blockchain can shape expectations for how efficiently Mastercard reinvests in payments infrastructure and digital commerce, and how that may influence future returns on capital.
• What if you looked at Mastercard through its earnings instead? See why Mastercard's 30.0x P/E tells a different valuation story.

The issue now is whether Mastercard’s current valuation is adequately supported by the returns it earns on the capital shareholders have funded.

You can test the same question about returns on capital across a wider set of payment and fintech players by screening for our screener containing 16 high quality undiscovered gems.

Is Mastercard Still Cheap on Excess Returns?

The Excess Returns model looks at how profitably Mastercard can reinvest shareholders’ equity above its own funding cost. In this view, the business is framed as an engine that earns far more on each dollar of book value than it needs to keep investors compensated for risk. Book value is $6.40 per share, while the model’s stable earnings power is $40.76 per share against a cost of equity of $1.30 per share, which leaves an excess return of $39.45 per share.

Those inputs imply an average return on equity that is very large at about 230.22%, supported by a stable book value estimate of $17.70 per share. Because Mastercard Wallet Pay and its role in Circle’s Arc blockchain both lean on existing network rails and data assets, they fit the profile of a company where incremental projects can matter a lot when returns on equity are already far above the equity charge. Despite this, the Excess Returns projections put Mastercard's estimated intrinsic value substantially above the current share price of $555.89. This is where the detailed output of the model helps you judge whether that gap is warranted. Find out what Mastercard could be worth using our Excess Returns estimate.

The Mastercard Narrative: What Would Justify Today's Price?

Simply Wall St Narratives take Mastercard's valuation puzzle and turn it into a set of clear future paths, spelling out which combinations of growth, profitability and earnings outcomes would need to play out for the stock to be worth materially more or materially less than today's price, and they sit on Simply Wall St's Community page. Where a single ratio or model offers one headline outcome, these scenarios set out the future conditions that outcome rests on so you can watch whether those assumptions actually show up in Mastercard's results over time.

Community views on Mastercard split cleanly between those who see quality available at a discount and those who think the stock already prices in a lot of good news.

Bull case: 26% undervalued

"Mastercard’s return on capital runs somewhere around 7-8x its cost of capital, which keeps the model asset light and the margins unusually high…"

Discover why this Narrative puts Mastercard at 26% undervalued.

Bear case: 7% overvalued

"Valuation premium: Mastercard trades around 30× forward earnings, above industry average (~22×), leaving little margin for error…"

Explore why this Narrative puts Mastercard at 7% overvalued.

An unanswered question on Mastercard that matters for risk

Before you rely too heavily on what Mastercard looks worth, it helps to know that Simply Wall St’s checks have already flagged concerns that could change the risk picture. Take a closer look at 2 warning signs before settling on a valuation.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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