StoneCo Ltd (NASDAQ: STNE): A good booming stock?
This TabStocks Article analyses StoneCo Ltd (NASDAQ: STNE) to determine whether the stock is worth an investment in 2022 and beyond.
Stock Name and Trading Stock Exchange Platform
StoneCo Ltd – NASDAQ (NASDAQ: STNE)
– London Stock Exchange (LSE:
– B3 S.A. (BVMF: $STOC31)
The Stock Sector
StoneCo is a Fintech company operating in the tech services sector that provides payment services, management tools, and flexible financial products to its clientele.
The customer base of the firm comprises merchants and partners that conduct e-commerce across various online channels.
It engages in the provision of cloud-based technology platforms, electronic payment systems, and POS solutions, to enable businesses to be autonomous and more independent.
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It was founded by Andre Street de Aguiar in 2000 and is headquartered in George Town, Cayman Islands.
Recent Most Important News on StoneCo Ltd
The company announced that its board of directors recently approved a new incentive plan pool.
This entails a portion of their shares, comprising 19.2 million restricted stock units, to be granted as long-term incentives linked to the achievement of its annual goals.
Another portion (1.7M) is to be granted as regular annual compensation and the rest (11.6M) will be reserved for future use by the company.
These changes are made to keep the company on track and ensure that they achieve its set targets.
The company’s co-founder Eduardo Pontes has decided to depart from the company after two decades of service.
The reasons are personal and remain unknown.
Following his exit, the company has to issue additional government enhancements.
The conversion of his class B shares to Class A shares requires regulation from the Brazilian Central bank.
The company is restructuring and will reduce voting power concentration.
StoneCo has also released its quarterly earnings earlier this month (June 2022).
The results were impressive, beating the consensus which saw its shares tick higher.
Current Position of StoneCo Ltd
StoneCo provides financial technology solutions like management systems to budding entrepreneurs.
It helps to turn opportunities into successful businesses to increase productivity, thus making them more effective.
The company had humble beginnings initially starting as Braspag, an online payment processing company in 2004.
Through a series of acquisitions over the years, it finally emerged in 2012, winning its acquirer license in the following year.
StoneCo operates mainly in its home country Brazil, servicing over 1 million Brazilian retailers.
They currently operate over 350 hubs in the entire country. The country has a decent percentile of the acquirer market share.
It serves as both an e-commerce and sales services provider to its customers. It has grown quickly over the years.
The company had a great run in 2020 after the crash in March.
This was its greatest year up to 2021 when it rose to peak highs.
It reported a surge in total payment volume by 62.6% in the year.
The massive gains have however been wiped in the past year’s market correction.
StoneCo made an entry into the credit business which was a hasty move that saw it get hammered.
The company has fallen in size considerably, from a $7.58B market cap in 2020 to a present $2.54B.
It is believed that they had weak underwriting standards and failed to reprise its solutions when interest rates started rising.
StoneCo is positive that they can make a turnaround, announcing that they will relaunch their credit products.
A bullish user on StockTwits stated that:
These guys are on a roll in building their software business as well as Fintech business. These temp issues related to high-interest rates impacting their $600M worth of investments in Banco Inter and Legacy Credit will prove to be a blessing in disguise for investors.
These profound fundamentals are perhaps what attracted the greatest value investor, Warren Buffett, to the company.
Berkshire Hathaway took a position in the company in October 2018 after the company’s IPO at $21 a share.
The purchase comprised 14 million shares which translated to Berkshire owning an 8% stake in StoneCo.
Many are questioning the decision, and so far given the company is down by 90%.
The oracle of Omaha is a contrarian investor who is known to have different insights.
In the long haul, his bet has always paid off.
Another renowned investor, Cathie Wood has backed StoneCo with her firm Ark Invest holding a 1% stake in the company.
These two investors are growth-focused and they surely see the potential in this company.
Fintech stocks have outperformed banks by 272%, which have been declining.
Financial technology is revolutionizing the $23 Trillion Old guards banking industry as a former Wall Street manager forecasts.
StoneCo is in good stead to capitalize on this.
Stock Price Chart for StoneCo Ltd
As of the 22nd of June 2022, StoneCo closed the market at $8.20, rising higher by (+1.23%).
It is trading at a day range of $7.84 – $8.46.
The average volume of shares traded is 9.48M.
The stock reached an annual high of $71.08 last year during its bull run.
It has fallen to a yearly low of $6.81 in mid-May this year.
Inflationary pressure is believed to be the cause of the crash in Fintech stocks.
StoneCo had internal issues that further accelerated the fall. It is down by 90% from its peak.
The drop has been worrying to investors in the stock, but some see it as an opportunity for a low entry.
There is a lot of volatility, but also a lot of prospects.
StoneCo has already fallen to its all-time lows and there could not be a better time to make an entry.
Its share price is justified at the moment and it is an easy double in a year.
Economic conditions are likely to affect the stock, in case of a recession it could tread a bit lower, but this stock will come roaring back up.
At the time of publishing this Article the StoneCo stock price was $9.64.
Sentiment on StoneCo Ltd
Argosy investors published its 2022 letter and covered insights on StoneCo.
It reads as follows:
StoneCo has, like Vizio seen a dramatic decline in value since adding to the investment during the first quarter. I added to the position early in the year after stone dropped significantly due to challenges in their credit portfolio, which they have changed as well as increasing interest rates in Brazil, which the company was slow to incorporate their pricing.
They further added that:
Despite these changes which should benefit STNE later in the year, the market, in general, has obviously continued to struggle and emerging market stocks have been hit even harder in many cases. Expectations are very low for the company now, and there is a good case to be made that the business could be worth much more than the current prices a couple of years from now.
This premise holds some water and many share the same views. The majority are bullish and know that this company has strong fundamentals and is dirt cheap at the moment.
Pros of StoneCo Ltd based on Investors Outlook
- Low entry price – Investors are wooed by the cheap price that StoneCo is currently trading at, this is considering it was 90% higher a few months ago. StoneCo is at its bottom. It will be a massive return if it rebounds to former levels and even surpasses targets.
- Attracting valuation levels – The potential upside is appealing for the stock since it is much undervalued at the moment. It traded at a remarkable NTM FCF yield of 10.53% and the stock has maintained support around the 24x NTM normalized P/E over 3 years.
- The Storm is over – StoneCo has already taken a massive hit and thus at this point there is little shorting and selling action on the stock. The potential for a trend reversal is highly likely and it has formed a ‘double bottom bear trap’.
- Strong forecast – StoneCo is anticipated to increase their overall bottom line in the years ahead. StoneCo is well-diversified and has interests in many other companies. Investment management firms like Nordstern Capital have assured us that this stock is a winner.
Cons of StoneCo Ltd based on Investors Outlook
- High volatility – This is a problem with the general equities market as a whole. Investors have not been particularly pleased to see the company plunge so severely. Capital has been lost and many are hoping for a good recovery.
- Market Risk – StoneCo is a high risk/ high reward play for the long term. It is not immune to market conditions including geopolitical tensions, inflation, and rate hikes. These have been some of the reasons it crashed.
Profits for StoneCo Ltd
StoneCo is fairly profitable although this has not been consistent in the past year due to various headwinds.
They released their Q1 reports beating EPS estimates by a rocking 40.38%
Revenue growth was registered at 138.6% YOY in Q1 2022 to R$2.07B.
Adjusted net income was R$132.2M with a 6.4% net margin.
This was a tremendous surge from the previous quarter’s R$33.7M and 1.8% margin.
There was a strong improvement in profitability compared to the previous quarter, with EBT coming in at R$163M, just a little shy of a tenfold increase from R$17M in Q4.
The two reported segments; Financial and software services accounted for the generated revenue with the former contributing the lion’s share.
Software services have surpassed the previous quarter’s earnings with the company banking on this division to grow more.
The net profit margin in March 2022 was -16.17%.
This has recently improved and forecasts reveal the next fiscal year will see the company register positive profitability.
Pros for investing in StoneCo Ltd based on the General Outlook
- Interesting growth prospects – The Company is growing very fast and is a future multi-bagger. The growth engine remains very strong for the company and they are expanding their segment, maximizing income generation. It still has a small market cap.
- Strong backing – Apart from Buffett, many other influential investors have a significant position in StoneCo and believe in its potential. Examples include Chinese Fintech giant Ant Financial owned by billionaire Jack Ma. Brazilian investment firm 3G Capital Inc.’s founders Jorge Paulo Lemann, Marcel Telles, and others.
- Higher inventory of POS – The Company decided to increase the point-of-sale purchases in their recent quarterly release. This will help to avoid supply chain bottlenecks and a looming chip shortage that is expected to be a big problem ahead.
- Huge and critical target market – StoneCo reported in its quarterly results an enormous growth in its customers base, rising by 218% YOY, adding 378,000 new users. They service small and medium-sized enterprises (SMEs) which are the backbone of an economy. Their mission resonates strongly with many and they will stand the test of time.
Cons for investing in StoneCo Ltd based on the General Outlook
- Adverse market conditions – The market has gravitated away from growth stocks at the moment due to worrying macroeconomic trends. It requires patience and a long-term view to benefit from companies like StoneCo.
- Shaky Financials – StoneCo has not been in the best of positions financially. They have posted losses of R$313M this quarter and have huge debts on which it is struggling to pay interest costs. Their ratios are not very pleasant, but they seem focused on growth over profits.
Growth Likelihood and Potential for StoneCo Ltd
StoneCo is growing at hyper speeds and shows no signs of slowing down.
In the past five years, it has recorded an astronomical increase in its users from 83,000 to 1.8 million.
In the same period, it has made multiple acquisitions, donated money to pandemic-related causes repurchased its shares, bought listed companies, and increased its staff to over 15,485 employees.
Wall Street analysts predict that earnings will grow by 138% this year for the company and 109.7% in 2023.
This is a multi-bagger that will surprise the market and savvy investors recognize this.
StoneCo Ltd (NASDAQ: STNE): A good booming stock?
Many experts have changed their rating of the stock from a hold to a buy.
Wall Street forecast a 56.35 upside potential with a target of $15.55.
Moving averages are neutral while oscillators indicate a buy, the stock is an overall buy.
Experts are bullish on this stock to its underlying fundamentals and Fintech will thrive as more disruption is ongoing is due in the traditional finance sector.
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