Some people like to copy the portfolio of legendary investor and Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B). However, I encourage everyone to think for themselves. Buffett’s portfolio may include shares of Mastercard (NYSE:MA). Nevertheless, a thorough MA stock analysis will reveal that the shares aren’t necessarily a great value right now.
And by the way, Mastercard isn’t ideal for passive-income investors. The company’s recently announced 66-cents-per-share quarterly dividend only amounts to a quarterly dividend yield of 0.14%, or 0.56% annualized, if the Mastercard stock price is $468. So, perhaps we can respect Buffett’s judgment but still choose not to copy all of his investments.
Mastercard’s Revenue Guidance vs. Operating Expenses
There’s no denying that Mastercard’s fourth-quarter 2023 financial results were good. The company generated net revenue of $6.5 billion, slightly beating the analysts’ consensus estimate of $6.48 billion.
Mastercard reported adjusted EPS of $3.18, while Wall Street had expected $3.08. Again, this wasn’t an “earnings crusher” moment, but Mastercard’s results were perfectly respectable.
The company’s operating expenses grew 21% year over year to $3.18 billion, versus the analysts’ consensus forecast of $2.91 billion. Moreover, Mastercard anticipates that the company’s current-quarter net revenue will grow at the “low-end of low-double-digits” on a YOY basis. That’s decent but not spectacular revenue growth, and if Mastercard continues to expand its operating expenses at a rapid pace, the company’s bottom-line results could falter.
Is Mastercard Stock Really a Good Buffett-Style Value Investment?
Of course, Buffett is famous for picking great value investments. Does Mastercard stock qualify, though? Believe it or not, a commonly cited valuation metric actually indicates that Mastercard doesn’t fit the bill.
If we use the GAAP-measured trailing 12-month price-to-earnings (P/E) ratio as a valuation measurement, Mastercard comes in at a surprisingly high 39.57x. In contrast, the sector median P/E ratio is 11.37x.
Perhaps this is less surprising when we consider MA stock recently rallied from $360 to $468. Again, let me remind you that Mastercard only expects current-quarter YOY revenue growth at the “low-end of low-double-digits.”
To provide another comparison, American Express (NYSE:AXP) has a P/E ratio of 18.96x. I’m not saying that you need to run out and buy American Express stock. The point is that Mastercard’s valuation isn’t particularly low at the moment, so maybe it’s not an ideal Buffett-style pick.
MA Stock Analysis: Not the Best Buffett Bet
To be perfectly frank, Mastercard’s dividend payments are paltry. In addition, the company may be overvalued after the recent run-up in Mastercard stock.
Still, feel free to monitor Buffett’s investments. Given his track record, he’s obviously doing something right.
On the other hand, you should conduct your own MA stock analysis and form your own conclusion. And, in light of Mastercard’s relatively high valuation, you may decide not to invest in the company until the share price comes down 10%, 20% or more.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
