One of the hottest stocks the last two years has been credit card issuer MasterCard (MA). Mastercard has risen almost 700% from its IPO price of $39 a share on May 25, 2006 to its current price around $310 (MA 2 Year Chart).
It’s up today after giving an investors presentation in which it upped its long term performance expectations.
But the stock is just too hot right here. Looking at the chart, at $310 MasterCard is trading more than 50% above its 200 day moving average. Anything 30% or higher above its 200 DMA is overbought so MasterCard is majorly overbought here.
Valuation is also stretched here. MasterCard’s net income has been inflated over the last 3 quarters to the tune of about $500 million from the sale of its stake in a Brazilian subsidiary.
Looking at free cash flow, which excludes the gains from these sales, MasterCard brought in about $800 million over the last 4 quarters. With an enterprise value around $38 billion and assuming 20% growth going forward we’re looking at a forward multiple around 40. That’s expensive for a company growing 20-25%.
I think it’s time to sell.
Disclosure: Top Gun is short MasterCard (MA) shares.