Title’s self explanatory…
“J” from Datascienceinvestor asked to exchange guest posts, but since I hardly bother to post much myself here these days, I declined, but offered to give him a guest post instead.
“J” asked for suggestions, and since my last post was on the top 5 generals for my new fund, I suggested any 1 of the 5 names and he picked Visa. (TTI’s Top 5 Generals)
So without further ado, go check his site out. I did, and it’s……. different, I guess. Something refreshing for a change. See if you find this useful.
Some of the numbers and figures in the post may be slightly off, that’s not a mistake on the part of the author, but rather, simply cos I’ve been a bit tardy in posting this.
Visa’s share price has risen substantially since the author wrote this. But still, most of the data should be relevant enough.
Stock in focus: Visa
This is a guest post by datascienceinvestor. You can find his blog here.
Visa (Symbol: V) is probably a company that almost everyone knows. For most of us, we utilizes its services in our everyday life. So for the uninitiated, what is Visa’s business?
Visa is a global payments technology company which aims to connect between several groups such as government, financial institutions, businesses and consumers. Its business model is really simple. It simply just manages and operates its electronics payment network (now I may be oversimplifying it here, but trust me it’s not too complicated). And the best part of having a simple business model is that it is also usually a very profitable business model.
In this electronics payment space, there aren’t too many competitors, with the closest competitor for Visa being Mastercard. These two companies enjoy a duopoly status in the electronics payment space and have built such an impregnable moat that it’s very difficult for any other company to take significant market share away from them. With the world moving towards cashless transactions, there are many more good days ahead for Visa and Mastercard.
Now, back to Visa. How has the stock price performed in the past year?
Pretty decent, isn’t it? It’s on a constant uptrend for the past year.
How does it compare against the major US indices such as DJIA then?
Now, the r coefficient for the trend lines for both Visa and DJIA can be seen in the graph above. So what does r coefficient means? r coefficient is used in statistical analysis to explain the strength of the linear relationship between 2 variables. Since we are using price and date as the variables, r coefficient allows us to better understand how the price changes with time. In this case, the higher the r coefficient, the better the price performance. Hence, we can see clearly here that Visa has a better price performance than DJIA. This also goes to show that you will reap in a bigger profit if you are to buy and hold Visa instead of DJIA for the past year.
I like to touch on a bit on Sentiment Analysis here as it is increasingly used in various domains to better understand the effects of people sentiments on various other factors/outcomes. In stocks investing, this area of data science is becoming increasing important. Sentiment Analysis is usually applied in stocks investing to better understand if people sentiments has any effect on stock prices. In this case, I will attempt to try to assign a quantitative value to people sentiments on Visa to see if there is a direct correlation between people sentiments and Visa’s stock price.
In this case, I extracted Visa sentiment data from Sentdex which pulls data from a variety of sources such as Reuters, Yahoo Finance, Bloomberg, Forbes etc and assigns a value to the general sentiment on a particular topic everyday.
Here is the scale, ranging from a value of -3 (strongly negative) to 6 (strongly positive)
6 – Strongest positive sentiment
5 – Extremely strong, positive, sentiment
4 – Very strong, positive, sentiment
3 – Strong, positive sentiment
2 – Substantially positive sentiment
1 – Barely positive sentiment
0 – Neutral sentiment
-1 – Sentiment trending into negatives
-2 – Weak negative sentiment
-3 – Strongest negative sentiment.
To ensure higher accuracy in the data value, I use the Simple Moving Average of the sentiment value across a period of 5 days instead.
Here is how it looks like (as an example)
Now, let’s take a look at how its sentiment value looks like over the past 1 year.
For most parts of the last year, the sentiments for Visa has been rather positive except for the current period (when its current results missed on revenue expectations– causing the sharpest drop in sentiments in the past year) and the period between Nov 2019 and Jan 2020 (likely due to the looming near term headwinds of 5% increase in tariffs on Chinese imports scheduled on Dec 15 back then).
How has Visa sentiment analysis correlate to its price performance then? Here is the graph.
The r coefficient for the trend line is a mere 0.0564 which suggests that sentiments has very little or almost negligible effects on its share price over the course of past year. Hence, sentiments analysis can be taken out of consideration when analyzing the various factors influencing the stock price for Visa. This is very unlike some of the tech stocks such as Nvidia which relies heavily on sentiments.
On the fundamental side, Visa’s PE ratio of 36.8X is now higher as compared to the industry average of 32X. Its PB ratio of 14.5X is also much higher than the industry average of 4.2X. Hence, I wouldn’t say that Visa is a value stock right now based on these factors.
However, if you are looking at a stable stock to invest in, Visa could be very well on your watch list. Its debt is well covered by its operating cash flow (coverage of around 76%) and interest payments on its debt are also well covered by its EBIT (almost 54X). Historically, the stock has always been on a steady rise with very minimal occasions when it suffers a great price drop. If you are in it for the long term, you may like to consider either buying on the dips on just simply dollar cost average in your purchases.
Hope this has been informative!
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