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Bear of the Day: StoneCo (STNE)

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  • STNE

StoneCo Ltd. STNE provides financial technology solutions in Brazil. The payments company offers an end-to-end cloud-based technology platform to conduct electronic commerce, across in-store, online and mobile channels.

The company has been stuck in a steep earnings downtrend all year. And my colleague Tracey Ryniec was prescient to note its less than stellar profit profile back in January when she profiled Warren Buffett's 5 Most Spectacular Earnings Charts.

I didn't even know he owned it! Here's what Tracey had to say...

StoneCo is the only one on this list which doesn’t have a pristine earnings record. It has beat just 2 out of the last 4 quarters but it’s up 100% over the past 6 months so it deserves to be included along with the others. This Brazilian digital payments and finance company went IPO in the fourth quarter of 2018 and that’s when Berkshire got in.

The story did not get any better last week when Stone reported Q3 earnings.

StoneCo came out with a quarterly loss of $0.78 per share versus the Zacks Consensus Estimate of $0.12. This compares to earnings of $0.16 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of -750%. A quarter ago, it was expected that this company would post earnings of $0.15 per share when it actually produced earnings of $0.32, delivering a surprise of 113.33%.

Over the last four quarters, the company has surpassed consensus EPS estimates just once.

StoneCo, which belongs to the Zacks Internet--Software industry, posted revenues of $281.2 million for the quarter ended September 2021, surpassing the Zacks Consensus Estimate by 46.79%.

This compares to year-ago revenues of $173.85 million. The company has topped consensus revenue estimates three times over the last four quarters.

Despite this impressive topline growth, the stock is down over 80% since the February peak near $95. And after last week's report, shares dropped over 40% on massive volume of 87 million shares.

This tells me there may be some major strategy shift or regulatory change in Brazil that has so severely affected their business outlook.

But you'd never know that watching the ARK Invest team which added 294,000 shares last Wednesday on the post-earnings plunge at an average price above $21.

StoneCo may have a great future ahead serving Brazil and more of South America. But until the earnings revisions stop going down and start heading back up, I'd be careful. The Zacks Rank will let you know.

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