While bears argue that margins shrank in the second-quarter, Pierry is impressed by StoneCo’s ability to rapidly expand into new businesses. As investors hit the exits without much forethought, the analyst maintains a Buy rating on StoneCo stock along with a $42 price target. For perspective, StoneCo’s stock closed at $30.52 today, so this implies upside of nearly 40%. (To watch Pierry’s track record, click here)
The Brazilian fin-tech company runs electronic payment and payment processing units in Brazil, and the unique growth opportunity in Latin America combined with its impressive technology makes the company one to watch.
In the past quarter, StoneCo’s revenues increased by 68% y/y compared to 54% y/y growth in operating expenses. StoneCo also benefited from a lower effective tax rate in the quarter, which helped adjusted net income rise to R$194 million from R$74 million during the first quarter.
StoneCo’s strong growth is shown in its number of software users, which doubled in the second quarter to reach 70k clients compared to 32k at the end of the first quarter. Although StoneCo has not officially launched its digital account service yet, 10 thousand clients have opened accounts, which bodes well for the new development going forward.
StoneCo’s credit services also showed solid growth in the quarter. The company distributed R$50 million in credit to 3 thousand clients. Pierry cheers how StoneCo chose to not incur credit risk by running a profit-sharing model with a partner bank, while strictly limiting how much credit each client can accumulate.
Overall, Pierry is pleased with StoneCo’s ability to grow its customer base at an incredible rate while holding up its take rate on transactions. Although the company’s expenses were higher than Pierry forecasted, he views it as a positive that the money is being spent on expanding the company into new business segments.
The rest of Wall Street is generally in line with Pierry’s positive view on StoneCo stock, considering TipRanks analytics showcase STNE as a Moderate Buy. Out of 5 analysts polled in the last 3 months, 3 are bullish on the stock, while 2 remain sidelined. With a potential upside of 19%, the stock’s consensus target price stands at $36.25. (See STNE’s price targets and analyst ratings on TipRanks)
Oh, and let's not forget, Berkshire Hathaway owns about 11% stake in StoneCo. And when Berkshire Hathaway makes an investment, you should listen.