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Cayman Islands-based StoneCo (NASDAQ:STNE) offers financial technology solutions and has operations in Brazil. This might sound like an intriguing international investment opportunity, but in reality, STNE stock is just a toxic asset that should be avoided.
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Don’t misunderstand — there was a period of time when StoneCo’s shareholders made a killing. The good times are now in the rearview mirror, however.
As we’ll see, STNE stock’s momentum is undeniably to the downside. Not only that, but StoneCo’s long-term shareholders coughed up whatever gains they made, and shouldn’t count on a recovery.
The point is, not all international tech investments are good ones. You have to vet each company carefully — and in StoneCo’s case, a thorough examination shows that the financial situation is far from ideal.
STNE Stock at a Glance
Just to recap, back in October of 2018, StoneCo established an initial public offering (IPO) price of $24. However, STNE stock opened for trading on that first day at $32.
Fast-forward to April of 2020, and the StoneCo share price had declined to $17 and change. However, this drawdown was undoubtedly attributable, at least in part, to the spread of the Covid-19 pandemic.
The rebound in STNE stock was impressive, to say the least. Amazingly, the share price reached a peak of around $95 in February of 2021. That rally may have been fueled more by hope and hype, however, than by StoneCo’s financials and fundamentals. Thus, the share price fell back to $17 in early January of 2022.
There’s definitely a lesson here about the hazards of buying highly speculative stocks at high prices. In some instances, it can be bad for your fiscal health.
Spending Like There’s No Tomorrow
To sum it up, StoneCo seeks to provide payment processing solutions, primarily in Brazil, including point-of-sale machines and payment gateway services. Let’s be clear: it is operating in a highly challenging market environment. Brazil’s economy was, and still is, hit hard by the Covid-19 pandemic.
Plus, if you thought the U.S.’s inflation rate was high, then get a load of this. Brazil’s annualized inflation rate, according to the most recent reading, is 10.06%.
When practically everything is expensive, it’s usually not a great idea to go on a spending spree. Yet, that’s exactly what StoneCo has done. Judging by the figures from its third-quarter 2021 financial data release, it’s evident the company didn’t exercise fiscal discipline:
Administrative expenses totaled 359.8 million Brazilian reals (BRL), 238.9% higher on a year-over-year (YOY) basis.
Selling expenses were 308.2 million BRL for an increase of 120.9% YOY.
Financial expenses came to 330.7 million BRL, marking an eye-watering 411.3% YOY increase.
Cost of services was 525.6 million BRL, 152.6% higher on a YOY basis.
Poor Judgment, Poor Results
Scouring through the press release, there’s no assurance from StoneCo that the company has an action plan to curtail its spending. Furthermore, its ill-fated investment in Banco Inter was a complete bust. During 2021’s third quarter, StoneCo incurred mark-to-market losses totaling 1.3 billion BRL in its investment in Banco Inter.
By now, you might have the impression that StoneCo’s executives have demonstrated poor judgment. With that in mind, let’s perform a checkup on the company’s bottom-line performance.
During the three months ending on Sept. 30, 2021, StoneCo incurred a staggering net loss of 1.26 billion BRL. That’s significantly worse than the 249.1 million BRL net gain reported in the year-earlier equivalent period.
So, if investors were counting on a post-Covid-19 recovery trade with STNE stock, that clearly hasn’t panned out.
The Takeaway on STNE Stock
International investing can be challenging. It requires you to select the most promising businesses while mitigating the risks as much as possible. Given StoneCo’s subpar financial performance and Brazil’s economic challenges, it’s difficult to build a bullish thesis for this company.
The company’s risks, as we’ve seen, are considerable and make it difficult to own STNE stock with confidence. Consequently, prospective investors should consider seeking out a company with a more favorable financial profile.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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