STNE

Why StoneCo Lost 20% in the First Half of 2021

What happened

Shares of Brazilian fintech company StoneCo (NASDAQ: STNE) fell 20% in the first six months of 2021 according to data provided by S&P Global Market Intelligence. Fourth-quarter earnings reported in March and first-quarter earnings reported in June both came in below analyst expectations, and shares are trading at almost 120 times trailing-12-month earnings. It's fallen even more since July 1 and is down 25% year to date as of this writing, as seen in this chart.

STNE Chart

STNE data by YCharts

So what

StoneCo provides fintech solutions for Brazilian businesses as well as digital payment options, like Square. That includes point of sale devices, digital bank accounts, credit card processing, and other digital features. That's putting pressure on the company during the pandemic when many businesses in Brazil are still closed, but its digital focus remained a growth driver.

A merchang using a digital point-of-sale device for a customer in a store with handbags and other products.

Image source: Getty Images.

The fourth-quarter analyst estimate consensus was $0.23 in earnings per share, and Stoneco posted $0.22. The first-quarter analyst estimate consensus was $0.18 in EPS, and StoneCo posted $0.11.

But other metrics told a story of growth. Small business active clients increased 67% year over year in the first quarter, and small business TPV (total payment volume) increased 45%, accelerating each month. Digital banking accounts increased more than fivefold, and revenue increased 21% to $3.5 billion, despite pandemic-related provisions.

The company said it expects total 2021 revenue and income growth rates to have "significant acceleration" from 2020.

Now what

Restrictions remain in Brazil as the country continues to deal with a raging pandemic, and that might constrain StoneCo in the short term.

But the company is investing in its business to be in a position to grow when the recovery begins.Brazil is the largest South American country, with a population of 211 million, and according to a study by J.P. Morgan, e-commerce only accounts for 3.2% of total retail spend. StoneCo is ready for action, and the company's long-term prospects look very exciting.

However, valuation remains high even at the lower price. Investors may want to dip their feet into StoneCo at this price, but they also may want to wait until the price comes down or the business makes a bigger rebound before they create a bigger position.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Square and Stoneco LTD. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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