STNE Stock: Has Stone Co Been Oversold?
13 Junho 2022 - 6:59AM
Finscreener.org
When you read media reports on
the pace of the digital economy, you are often under the impression
that the whole world has already gone digital. The rise of
companies like Amazon (NASDAQ:
AMZN) and
Shopify (NYSE:
SHOP) would have you believe that everyone is buying
stuff online and e-commerce is the only way to go
forward.
However, when you look at the
actual numbers, you could be shocked. Online retail still accounts
for only around 16% of total U.S. retail sales. And if online has
such a small share in the world’s largest consumer-oriented
country, the number must surely be lower in lesser developed
countries. It means there is a lot of opportunity in emerging
economies and smart companies will be able to capitalize on the
same.
Brazil is one such country,
and Stone Co (NASDAQ: STNE)
is one such company. Brazil has around 13.5 million MSMBs (micro,
small and medium businesses) and a large number of them don’t have
access to e-commerce solutions. Stone Co provides those
solutions.
The fintech company has been
building itself to become a one-stop-shop in a country that is
going digital at a very fast pace. At the end of Q1 2022, Stone Co
had an active client base of 1.9 million after it added 160,100
clients in the quarter.
A look at Q1 earnings for StoneCo
Stone Co announced its numbers
for
Q1 of 2022 and posted revenue of $402 million, up 138.6%
compared to the corresponding quarter in 2021. It beat the
mid-range of the company’s guidance of $370 million to $380
million. StoneCo’s financial services platform revenues grew 107.8%
to $345 million and its software platform revenues grew 11x to
$65.5 million.
Adjusted net income came in at
$26.5 million compared to $6.75 million in Q4 of 2021. That’s a
massive improvement sequentially. However, it was a drop of 29.4%
compared to $37.6 million that Stone Co reported in Q1 of
2021.
Why STNE stock should be on your watchlist?
StoneCo operates in two key
areas. The first one is financial services which include payment
solutions, digital banking, credit, and insurance. This segment
serves MSMBs as well as key accounts. The second segment is
software which comprises two fronts. The Core front includes
POS/ERP solutions, TEF and QR Code gateways, reconciliation, and
CRM. The Digital front includes OMS, e-commerce platform,
engagement tools, Ads solution, and Marketplace Hub.
The company’s banking business
has grown sequentially. Stone Co said that the number of active
digital banking accounts closed at 509,900, up 3.7% sequentially
and 2.1x compared to Q1 of 2021. The average revenue per active
client (ARPAC) was up 2.8x year-over-year and 32%
sequentially.
Stone Co was heavily sold in the
last year. It is down almost 81% in the last year and declined 53%
in 2022. It was part of the great sell-off of growth stocks when
markets realized that once lockdowns opened up and people started
resuming their physical lives, demand would be limited for new-age
tech companies.
However, there is a very solid
chance that Stone Co has been oversold. People might have resumed
their physical lives but shopping online is only going to increase
in the coming years. It’s no surprise that StoneCo’s guidance for
Q2 of 2022 is between $430 million and $440 million. EBIT (
earnings before interest and taxes) is expected to come in at $37
million, up 13.4% from Q1 2022.
This
World Economic Forum
report from May 22 says
that “Brazilians are adopting digital payments faster than anyone
else”. There is clearly a great opportunity here in the MSMBs
space. Stone Co looks like it is in the perfect position to
capitalize on it. It looks a good buy right now.
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