Ken Kam's Best Ideas Blog

Mastercard has more than tripled since going public in May, 2006 at $46. When I reviewed last week's data from the Strategy Lab Open, I noticed that many of the people who held Mastercard had made it the single largest position in their portfolios. After a rough July and August, Mastercard has been on a tear recently, up about 25% off its recent lows.  This made me wonder – do the Strategy Lab Open participants think this streak will continue, or are they getting ready to take some profits?

Since Mastercard is also one of my Best Idea stocks, I saw a golden opportunity to check my thinking with a fairly large group of people who all share an interest in this stock. Nothing vets an idea faster than discussing it with a big group of knowledgeable and interested people.

To begin the discussion, RD80 (Full Post) did a great job of summarizing their business model.

"MA's bread and butter is transaction / processing fees. Everytime someone charges a purchase on a Mastercard, MA gets a little slice of the purchase. The banks, credit unions, etc. that issue the cards collect the interest and other fees and assume the risks that go with extending credit to all of us consumers - priceless business model."

Understanding the business model is important because all of the companies that the conventional wisdom/Wall Street says are "comparables" have a somewhat different business model so its hard to see why Mastercard should be valued at "comparable" multiples.

One of Marketocracy's mFOLIO Masters, rmcduff (Full Post), writes:

"MA was incorrectly priced from the outset, as investors and analysts evaluated the stock as though it was a credit card company. Originally, the few analysts that covered the stock simply lumped MA into a peer group with American Express and a number of other publicly traded credit card firms."

Continue reading "Is Mastercard Priceless?" »

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Posted by Ken Kam at 1:55 AM | Permalink