Visa Inc Shares Head Lower Despite Positive Long-Term Prospects

Visa Inc V shares have been under pressure recently, along with the broader market.

Both Visa and Mastercard Inc have historically been "leading" stocks for the market, in terms of the timing of major turns up or down in price. If Visa is showing technical weakness on a trending basis, it is not a good sign for the broader market.

What The Bulls See

• Very attractive net profit margins of 44.65 percent.
• $4 billion in cash versus zero debt.
• A current ratio of 1.70.
• Huge positive levered free cash flow of $5.26 billion annually.

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What The Bears See

• Expensive valuation metrics: A price-to-earnings ratio of around 20 versus estimated 2015 revenue growth of 10.5 percent, and EPS growth of only 15.2 percent, a price-to-book ratio of 4.84 and a price-to-sales ratio of 10.69.
• A bearish technical set-up in the short-term that has plenty of room to the downside even under the best scenario for the bulls.

Technical Take

Technicians note that Visa appears to be either in a "c" wave of an “abc” correction to the downside in the best case, or in wave "iii" of a five-wave sequence to the downside in the worst case. In the best short-term case scenario, Visa has a downside target of $201.46. In the more bearish scenario, the downside target range would be $191.24 to $195.14.

Visa will be facing a major "make or break" situation when it eventually tests out the $201.46 "correction support" level. The fundamentals of the company still appear strong, but sometimes the market action becomes so negative that the best companies are forced lower right along with the rest of the crowd.