Visa Inc. (NYSE:V)

An analysis of the valuation multiples between 2017 and 2022 reveals a cyclical trend characterized by a significant expansion in multiples peaking in 2020, followed by a general contraction toward 2022. While most ratios returned to or fell below their 2017 levels, the price-to-book value remained elevated, indicating a shift in how the market values the company's net assets relative to its earnings and sales.

Price to Earnings (P/E) and Price to Operating Profit (P/OP)

Both earnings-based multiples exhibit a similar trajectory, peaking in September 2020 at 40.76 and 31.45, respectively. Following this peak, a downward trend is observed, with the P/E ratio declining to 28.97 and the P/OP ratio to 23.03 by September 2022. The P/E ratio in 2022 represents the lowest valuation in the six-year period, suggesting a compression in the premium investors are willing to pay for each dollar of net income.

Price to Sales (P/S)

The P/S ratio showed a consistent year-over-year increase from 13.57 in 2017 to a high of 20.27 in 2020. This expansion suggests a period of heightened market optimism regarding revenue growth. However, this trend reversed after 2020, with the ratio retreating to 14.78 by 2022, nearly returning to the levels observed in 2017.

Price to Book Value (P/BV)

Unlike the other valuation metrics, the P/BV ratio demonstrates a sustained long-term increase. Starting at 7.61 in 2017, the ratio climbed steadily to 12.23 in 2020 and remained relatively stable thereafter, ending at 12.18 in 2022. This divergence suggests that while earnings and sales multiples contracted, the market continued to assign a higher premium to the company's book value compared to the 2017 baseline.

The financial metrics from 2017 to 2022 indicate a period of substantial growth in both share price and earnings per share (EPS), accompanied by significant fluctuations in the price-to-earnings (P/E) valuation multiple.

Share Price and Earnings Performance

A consistent upward trajectory in share price is observed, rising from 109.82 US$ in 2017 to 210.14 US$ in 2022. This growth is largely supported by a general increase in EPS, which grew from 2.95 US$ to 7.25 US$ over the same period. A temporary contraction in EPS occurred in 2020, falling to 5.09 US$ from 5.60 US$ in the preceding year, before rebounding strongly in 2021 and 2022.

Price-to-Earnings (P/E) Ratio Volatility

The P/E ratio exhibited notable volatility throughout the period. After a decline from 37.19 in 2017 to 30.03 in 2018, the ratio peaked at 40.76 in 2020. This peak occurred simultaneously with the aforementioned dip in EPS, suggesting that the share price increase during 2020 significantly outpaced earnings growth, resulting in a heightened valuation multiple.

Valuation Compression

A downward trend in the P/E ratio is evident in the final two years of the period. Despite the share price reaching its maximum value of 210.14 US$ and EPS reaching its peak of 7.25 US$ by September 30, 2022, the P/E ratio declined to 28.97. This indicates a valuation compression where earnings growth has more than offset the increase in share price, resulting in the lowest P/E multiple within the observed six-year window.

An evaluation of the valuation multiples from 2017 to 2022 reveals a period of significant expansion in market pricing followed by a normalization of the Price to Operating Profit (P/OP) ratio.

Share Price Trends

A consistent upward trajectory is observed from 2017 to 2020, with the share price increasing from 109.82 to a peak of 207.57. Following this period of growth, the price stabilized, concluding the analysis period at 210.14 in 2022.

Operating Profit per Share Performance

Operating profit per share demonstrated overall growth, rising from 5.35 in 2017 to 9.13 in 2022. A temporary contraction occurred in 2020, where profit per share declined to 6.60 from 6.96 in the prior year, before entering a phase of accelerated growth through 2022.

Price to Operating Profit (P/OP) Analysis

The P/OP ratio experienced a steady expansion from 20.52 in 2017 to a peak of 31.45 in 2020, indicating that the market price appreciated more rapidly than the underlying operating profitability. Subsequent to 2020, a contraction is noted, with the ratio descending to 27.13 in 2021 and further to 23.03 in 2022. This trend indicates a realignment where operating profit growth began to outpace share price appreciation, leading to a more conservative valuation multiple by the end of the period.

The valuation metrics for the period between September 30, 2017, and September 30, 2022, exhibit a cycle of multiple expansion followed by a period of valuation compression. While the share price demonstrated a general upward trajectory, the relationship between market valuation and revenue generation evolved significantly over these six years.

Price-to-Sales Ratio Trend

The P/S ratio experienced a consistent increase from 13.57 in 2017 to a peak of 20.27 in 2020. This upward trend indicates an expanding valuation multiple, where the market price grew at a faster rate than the revenue per share. Following the 2020 peak, the ratio entered a contraction phase, declining to 17.79 in 2021 and further to 14.78 in 2022, returning to levels similar to those observed at the start of the period.

Revenue and Share Price Correlation

Share price grew steadily from 109.82 USD in 2017 to 207.57 USD in 2020, coinciding with the expansion of the P/S ratio. In contrast, the period from 2020 to 2022 saw the share price stabilize between 203.33 USD and 210.14 USD, while sales per share grew substantially from 10.24 USD to 14.22 USD. This divergence explains the subsequent decline in the P/S ratio, as fundamental revenue growth began to outpace price appreciation.

Analysis of the 2020 Valuation Peak

The peak P/S ratio of 20.27 in 2020 occurred despite a marginal decrease in sales per share, which fell from 10.66 USD in 2019 to 10.24 USD. This suggests that the valuation peak was primarily driven by share price appreciation and market sentiment rather than an increase in operational revenue performance during that specific fiscal year.

An analysis of the valuation multiples from September 30, 2017, to September 30, 2022, reveals a consistent expansion in the Price to Book Value (P/BV) ratio. The ratio increased from 7.61 to 12.18 over the six-year period, indicating that the market valuation of the equity grew at a significantly faster rate than the underlying accounting value of the assets.

Share Price Trajectory

The share price exhibited a strong upward trend for the majority of the period, rising from 109.82 US$ in 2017 to 210.14 US$ in 2022. A minor correction occurred in 2021, where the price decreased slightly to 203.33 US$ before resuming its ascent in the final year of the analysis.

Book Value per Share (BVPS) Growth

The book value per share demonstrated steady, incremental growth from 14.44 US$ in 2017 to a peak of 17.83 US$ in 2021. However, a slight decline to 17.26 US$ was recorded by September 30, 2022, reflecting a marginal reduction in net assets per share.

Price to Book Value (P/BV) Dynamics

The P/BV ratio climbed steadily from 7.61 in 2017 to 12.23 in 2020, signaling increasing investor willingness to pay a premium over the company's book value. While the ratio moderated to 11.41 in 2021 in alignment with the slight share price dip, it rose again to 12.18 in 2022. This final increase was driven by the dual effect of a recovering share price and a decreasing book value per share.