Key Points
Brazil continues to struggle with the pandemic, but this company is still performing.
Since the country lags behind developed countries in terms of development, there are huge e-commerce opportunities.
The company has posted profits, and analysts expect mid-double-digit growth over the next two years.
These two giants in the investment world have different philosophies, but as more and more economies move online, their stock picking will inevitably begin to overlap. Buffett's Berkshire Hathaway has historically favored companies with strong cash flows and earnings, and Cathie Wood's ARK Invest Asset Management fund invests in technology stocks that have the potential to change the world, regardless of whether they are already profitable.
But they all hold shares in StoneCo Ltd, a Brazilian e-commerce and payments provider that helps companies build digital businesses. It's been a tough year for the company as Brazil continues to battle the pandemic, with shares down more than 30% year to date, but it's posting strong growth on key metrics, so now might be a good time to buy.
Small Business Digitization
StoneCo is a one-stop shop for financial technology solutions, providing Brazilian businesses with the tools they need to move from cash payments to the digital economy . It helps facilitate online transactions in-store with point-of-sale (POS) systems and e-commerce platform Pagar.me, which provides checkout and social commerce integration. The
Stone brand also offers financing to help small businesses grow, with flexible repayments and sales links.
In addition to mainstream sales solutions, Stone also operates a brand called TON, which specializes in providing similar services to micro-enterprises and self-employed individuals who have just started. It offers discounted fees, non-recurring monthly hardware rental fees, and digital accounts to receive payments from entrepreneurs who don't yet have access to the banking system. The segment is growing rapidly, with more than 190,000 customers, 76,000 of which were added in the last quarter alone.
In May of this year, StoneCo formed a partnership with Banco Inter, a 100% digital bank with 10.2 million customers in Brazil. The deal involves StoneCo acquiring a 4.99% stake in the bank for $471 million and beginning a technology integration that is expected to have an impact on both organizations. StoneCo merchants, for example, will have the opportunity to connect to the bank's digital InterShop platform, an app-based seller directory.
In addition, the bank will offer StoneCo clients the opportunity to invest in fixed income, providing clients with the opportunity to earn income from the cash they generate.
Financial Execution
Despite significant pandemic-related headwinds, StoneCo has done well -- fueling growth. It has overcome these challenges while taking advantage of the opportunity of moving more businesses online, a trend that should continue once COVID-19 subsides. The growth in total
customers is most significant as it demonstrates demand for StoneCo's suite of products and services. It is estimated that 36% more Brazilians shopped online in 2020 compared to 2019, resulting in a 60% increase in StoneCo's total payment volume for the year. The pandemic may be to blame, but it highlights the company's opportunity for rapid growth, which should continue in the first quarter of 2021.
Table: StoneCo’s various indicators in 2020 and the first quarter of 2021
Data source: Company’s Securities and Exchange Commission copy. Convert from Brazilian real to using the exchange rate from the end of March 2021.
StoneCo has done an excellent job of increasing customer engagement, and when they start using payment products, they are also increasingly likely to skip using banking and credit products. The proportion of small and medium-sized enterprises using multiple solutions increased to 41% in the first quarter of 2021, compared with only 14% in the first quarter of 2020. Not only is the company rapidly growing its customer base, it's also getting more business from them.
On the credit side, as of the first quarter of 2021, StoneCo has provided $336 million in working capital financing to customers, a year-on-year increase of 472%.
Key Points Preview
Emerging markets like Brazil are often a big source of growth because they may be a little behind economically and therefore use technology from developed countries to grow quickly. With the data provided by StoneCo, it's no surprise that it has attracted value and growth investors such as Berkshire Hathaway and ARK.
analysts expect the company to earn $0.96 per share in 2021, which means the stock currently trades at 61 times this year's earnings. It's on the expensive side, but even the strongest tech stocks' projected growth is in that range.
Table: Analysts’ forecasts for StoneCo’s performance in 2021 and 2022
Source: Yahoo!
If it comes to fruition, this stock could provide strong returns for long-term investors as the pandemic improves, especially if you invest now as its price is down about 34% this year.
This article comes from the financial network
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