What we think about StoneCo
StoneCo in Three Words: Volatile, Fintech, Brazil
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Background
Brazilian Fintech leader StoneCo has been a volatile investment for several years. Shares have ebbed and flowed in response to the company’s fundamental earnings, Brazil’s presidential election and politics, and the changes that have been made by the government to interchange fee limits on prepaid cards.
Yet despite all of the changes, StoneCo’s business remains resilient. It reported 20% top-line growth in its recent third quarter, driven by a 42% increase in its small and medium business client base and a 20% increase in overall payment volume. Looking forward to the future, the company reaffirmed its long-term compound annual growth guidance of 13% in payment volumes (reaching R$600 billion by 2027), 26% growth in client deposits (to R$14 billion by 2027), 90% expansion of its credit portfolio (to R$5.5 billion), and expanding its take rate by 21 basis points (to 2.7%) in the three upcoming years between fiscal 2024 and 2027.
StoneCo management further indicated their confidence in the business by announcing a new R$1 billion share repurchase authorization. Like the rest of the country, Brazil’s GDP numbers have been volatile. But StoneCo is a high-risk/high-reward opportunity for risk-tolerant investors to play the economic growth of the world’s seventh most populous country.
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