We think so Ritchie Bros. Auctioneers (NYSE: RBA), Accenture plc. (NYSE: ACN), Akamai (NASDAQ: AKAM) and ExlService (NASDAQ: EXLS) stocks are currently better choices compared to Visa (NYSE: V). While all of the above stocks are Visa peers in the Internet Software & Services Industry, they have yielded an average return of 25% since the end of 2019, better than 10% return with Visa and 21% of S & P500 in the same period. In addition, each of them has reported faster growth in profits and revenue over the last twelve months and the three-year period compared to Visa. That said, they still seem to be cheaper than Visa. Despite better profits and revenue growth, these companies have a relatively lower valuation multiple (market value / operating income ratio) than V (33.9x) – RBA (23.7x), ACN (24.5x), AKAM (26.1x), and EXLS (31.1x). However, there is more to the comparison. Let us go back to look at a more complete picture of the relative valuations of the above companies by looking at historical revenue and growth in operating revenues as well as respective operating margins. Our dashboard Better Bet than V Stock have more details on this. Parts of the analysis are summarized below.
- Although Visa has the second highest turnover in the group – next to Accenture, its average annual growth rate of 6.3% over the last three years was the lowest.
EXLShas the highest average annual revenue growth of 13% in the same period, followed by Akamai (7.2%), Accenture (7.1%) and Ritchie Bros. (6.5%).
- This means that Accenture’s revenues have grown at a faster pace than Visas, despite being significantly higher than its peers. The remaining three companies are relatively small with an annual turnover of less than $ 5 billion. Dollar – not comparable to Visa and Accenture in terms of revenue and operating income.
- Visa has a significantly higher operating margin than its peers – 62% in the last twelve months, which was almost 4 times Accenture’s operating margin of 15%. The second best was AKAM with 21%.
- That said, Visa’s average annual revenue growth rate of 5.9% over the last three years was the lowest among its peers.
- Ritchie Bros. reported the highest annual growth rate of 24% in the same period, followed by EXLS (12%), ACN (12%) and AKAM (11%).
- This means that Accenture’s operating revenues have grown at a rate 2x faster than Visa.
The web of it all
Visa is a much larger company compared to its peers, Accenture shows. While revenue growth compares unfavorably with its peers in recent years, its operating margins are much better and stable close to the 60% mark. On the flip side, it is likely that the payment processing giant will not see a marked increase or decrease in its revenue over the next 1-2 years. However, its peers can still see higher revenue growth than Visa. Furthermore, EXLS, AKAM and RBA are still in the growth phase. Therefore, with better growth in the top line along with the margin expansion, they are likely to have better earnings growth relative to Visa in the coming years, which will bode well for their stock. In addition, we believe that there is a huge difference between the price-to-sell (P / S) multiples of Visa (21.1x) and the next in line – Akamai (5.5x), which suggests that Visa’s share is right animals compared to RBA, ACN, AKAM and EXLS.
While Show stock perhaps not attractive, 2020 has created many pricing that can offer attractive trading opportunities. For example, you will be surprised at how counterintuitive the asset assessment is Amazon vs Etsy. Another example is Apple vs Microsoft.
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