Credit: 2 top-quality stocks the market overlooks in 2026

2026-06-16 · By Lubin Danilo, founder of Lubin Investment

In the Credit Services sector, two stocks achieve the maximum score in my analysis: Mastercard (MA) and FirstCash Holdings (FCFS). Mastercard is a world-class cash machine; FirstCash is a lesser-known company, considerably cheaper, with solid growth. Neither is a bargain today, but both deserve a spot on your watchlist.

• Mastercard (MA) and FirstCash Holdings (FCFS) both score the maximum (10/10) in Credit Services according to my fundamental analysis method.
• Mastercard posts a free cash flow margin of 50.6% and a valuation of 25.3x its free cash flow: an elite business, but not cheap.
• FirstCash is less well-known: valued at only 16.6x its free cash flow, with FCF per share growth of 22.6% per year over 5 years.
• Both companies buy back their own shares, steadily reducing shares outstanding: a strong signal of disciplined capital allocation.
• Neither is in an immediate buy zone by my calculations, but both are worth watching for the next correction.

How I analyze the Credit Services sector

The Credit Services sector covers very different companies: payment networks like Mastercard, alternative lenders, consumer finance companies. What unites them is their dependence on credit and financial transactions, which makes them vulnerable to economic cycles.

My method does not start from the sector. It starts from the numbers. I run each company through 10 objective financial criteria: profitability, revenue and free cash flow growth, margins, debt levels, return on capital, share buybacks. I judge business quality first, independent of price. The score out of 10 reflects how many of these criteria the company passes. A 10/10 means it passes all of them.

Out of 42 companies in the Credit Services sector that I track, only two achieve this maximum score today: Mastercard and FirstCash Holdings. That is not a coincidence, and it is worth understanding why.

Mastercard (MA): the cash machine everyone knows, but few really analyze

Mastercard is one of the highest-rated companies in my entire database, across all sectors. To understand why, look at one number: its free cash flow margin reaches 50.6%. Free cash flow is the money that actually remains in the company after all expenses: salaries, investments, taxes. A 50% margin means that for every $100 in revenue, $50 ends up as genuinely available cash. Most companies do not exceed 10 to 15%.

How does Mastercard achieve this? Through its business model. The company does not lend money: it takes a commission on every transaction that passes through its network. No credit risk, near-zero marginal costs. Every dollar spent anywhere in the world with a Mastercard generates a tiny fraction of a cent. Multiplied by billions of daily transactions, that fraction becomes enormous.

Its moat rests on two pillars. First, the network effect: the more merchants accept Mastercard, the more consumers want a Mastercard, and vice versa. Second, barriers to entry: building a global payment network takes decades and billions of dollars. Visa and Mastercard built this when no one else could keep up. Today, even tech giants struggle to dislodge them.

On growth, revenues increase at an average of 14.1% per year over 5 years. Free cash flow per share grows at 20.9% per year: even faster than revenues, a sign of a well-scaling business. The company buys back its own shares at a rate of 2.3% per year, mechanically increasing each investor's share.

Is Mastercard expensive? What the valuation says

To measure a stock's price, I primarily use the P/FCF (price-to-free-cash-flow): the stock price divided by the annual free cash flow it generates per share. A P/FCF of 25 means you are paying 25 years worth of that cash today. The lower, the cheaper.

Mastercard currently trades at 25.3x its free cash flow. At $494.91 per share, my calculations indicate a fair value around $424. The stock is therefore overvalued by 14.3% relative to my estimate. Not outrageous for this quality, but not a bargain either. Mastercard sits at the 30th percentile of its sector valuation: more expensive than 70% of its peers, which for a company of this caliber is justified.

My take: Mastercard is exactly the kind of company I want in my portfolio if the price corrects. I am watching for a level around $420-430 to consider a reasonable entry point.

FirstCash Holdings (FCFS): the overlooked gem of alternative credit

FirstCash Holdings is a company that few retail investors follow. It operates pawnshops and alternative credit, primarily in the United States and Latin America. Its core business: lending money short-term to individuals who deposit an asset as collateral, or selling second-hand goods. Not glamorous, but remarkably stable.

Why a 10/10 despite much lower margins than Mastercard? Because my score does not judge the absolute size of margins, but the overall business quality on its own terms. FirstCash posts a free cash flow margin of 15.3%, which is solid for an alternative lender. Its Cash ROCE reaches 20.5%, meaning every dollar invested generates 20 cents of real cash per year.

What struck me when analyzing FirstCash is the consistency of its growth. Revenues grow at 16.2% per year over 5 years, and free cash flow per share at 22.6% per year. The share count is declining at 1.3% per year, showing the company buys back its own shares rather than diluting shareholders.

Its moat rests on physical proximity (a network of thousands of stores in areas often underserved by banks), local trust relationships, and regulatory barriers. It is a niche, defensive business with limited exposure to tech cycles.

Side-by-side comparison: MA vs FCFS

• Mastercard (MA): score 10/10, price $494.91, P/FCF 25.3x, FCF margin 50.6%, FCF/share growth +20.9%/year, Cash ROCE 134.6%, valuation: 14.3% premium
• FirstCash Holdings (FCFS): score 10/10, price $221.72, P/FCF 16.6x, FCF margin 15.3%, FCF/share growth +22.6%/year, Cash ROCE 20.5%, valuation: 8.2% premium
• Both buy back their own shares (declining share count)
• Both pay a growing dividend (MA: +14.2%/year over 5 years; FCFS: +8.6%/year over 5 years)
• Next earnings: MA on July 29, 2026; FCFS on July 23, 2026

Risks you should not ignore

For Mastercard, the main risk is regulatory. U.S. and European authorities regularly scrutinize payment network fees. A law capping interchange fees could weigh on margins. The rise of instant payments is also a factor to watch long-term, even though Mastercard is adapting better than expected.

For FirstCash, the risk is macroeconomic: a deep recession can reduce borrowers ability to repay, although the pawnshop model limits exposure. Latin American expansion brings currency and local regulatory risks.

In both cases, quality is there. The question is purely about price. And today, both stocks sit slightly above my buy threshold. Not enough to scare me away, but not enough to enter without thinking.

How I monitor these stocks

I build my portfolio through watchlists, not impulse. When a quality stock like Mastercard or FirstCash reaches my calculated buy price, I act. In the meantime, I track earnings releases (both in late July 2026) and update my valuation each quarter. You can find the full analysis of Mastercard at /analyse/MA and FirstCash at /analyse/FCFS.

FAQ

How does your score out of 10 work?

I run each company through 10 objective financial criteria: profitability, revenue and free cash flow growth, margins, debt levels, return on capital, share buybacks. Each validated criterion earns one point. A 10/10 means the company passes all tests. It is a quality filter, not a buy recommendation.

Why use P/FCF rather than the traditional P/E ratio?

The P/E ratio is based on accounting earnings, which can be manipulated through depreciation or non-recurring charges. The P/FCF measures the stock price relative to cash actually generated. A company can show good earnings while consuming cash: the P/FCF reveals this.

Is FirstCash Holdings really comparable to Mastercard in quality?

Not in terms of raw margins: Mastercard is in a class of its own with a 50% FCF margin. But my score judges each company on its own quality criteria, not in direct comparison. FirstCash validates all 10 criteria in its niche market, making it an exceptional company in its category.

Are these stocks in a buy zone today?

According to my calculations, no. Mastercard shows a 14.3% premium above my valuation, and FirstCash 8.2%. They deserve to be on your watchlist, but I do not enter a position without a margin of safety. The upcoming earnings in late July 2026 could create an opportunity if the market reacts poorly.

What is Cash ROCE and why does it matter?

Cash ROCE measures return on invested capital using actual free cash flow. It answers: for every dollar invested in the business, how much cash is generated? A Cash ROCE of 134.6% for Mastercard means each dollar of capital generates $1.35 in cash per year. Exceptional and reveals an asset-light business model.

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About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I have analyzed stocks through their fundamentals for several years and invest my own money with this method. I codified it into a tool that judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).