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Stock Market Analysis

Is StoneCo a Good Investment?

This e-commerce company has attracted some big fans like Warren Buffett. Here, we investigate if StoneCo stock is a buy right now.

StoneCo (NASDAQ: STNE) is a financial technology company based in Brazil. Founded by serial entrepreneur Andre Street, the company processed its first transaction in 2014 and has since grown to become one of the most significant e-commerce players in the lucrative South American market.

StoneCo’s primary product is a point-of-sale system, but behind that is a suite of integrated technology solutions to help businesses manage their accounts, connect with their customers, and track inventories. You can see why many analysts call the company “the Square (NYSE: SQ) of Brazil”.

In 2018, StoneCo went public on the NASDAQ exchange under the ticker symbol STNE priced at $24 a share. Since then, its shares have almost doubled in value.

So is StoneCo a good investment right now?

The bull case for StoneCo:

  • It’s backed by Buffett.
    We’re not in the business of following his every move, but if the Oracle of Omaha puts down a large stake in a company, it’s definitely worth paying attention to. When StoneCo went public back in October 2018, Buffett’s Berkshire Hathaway (NYSE: BRK.B) snapped up 14 million shares in the company at $24 a pop. The company now owns just over 5% of outstanding StoneCo shares, with the Brazilian company being one of Berkshire Hathaway’s top investments in 2019.
  • It’s tapping into an underserved market.
    StoneCo has two massive markets in its immediate sightline: its home country of Brazil and the wider South American market. Cash is still king in Brazil, with a report by McKinsey last year finding that 47% of payments in the country are carried out with cash. In addition to this, roughly 55 million of the 210 million population do not have a bank account, giving a company like StoneCo a huge opportunity for growth in its home market. Further afield, as little as 30% of adults in several Latin American countries have a bank account according to McKinsey, flagging it as the likely growth leader in financial markets over the next decade. 
  • Outstanding growth. And StoneCo can take advantage of this. In its recent earnings report, StoneCo reported a 55% jump in total payment volumes (TPV) in 2019, while revenue grew by more than 63% and the adjusted net margin sat at 33.3%. On the customer side of things, StoneCo’s client base grew 84% year-over-year and the company finished 2019 with over 135,000 clients using the company’s software.
Our Shopify investment has grown over 900%

The bear case for StoneCo:

  • Exchange rates.
    One of the hidden dangers in investing in a company that reports its earnings in a different currency is the effects of exchange rates. The U.S. dollar has gained 21% in value compared to the Brazilian real over the last three years and if that trend continues, it would reduce StoneCo’s profits for investors based in the United States.
  • Regional problems.
    In 2015, the Brazilian economy fell into what would end up being its worst recession on record. The country’s economy contracted by almost 7% in the space of two years, severely hindering economic growth in the region. Though the country is no longer still in recession, GDP growth remains sluggish and more than 13 million people are unemployed, which could be a big impediment to any company in the region, not least one dependent on consumer purchasing. 

So, should I buy StoneCo stock?: 

Though StoneCo is a sizable company with a market cap of about $12 billion, it’s still prone to extreme volatility. However, taking into account the numerous risks facing the company listed above, there is still incredible potential for growth with StoneCo in and up and coming market.

Just expect a bumpy few years ahead, especially with the coronavirus pandemic ravaging the Brazilian economy in particular.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in StoneCo. Read our full disclosure policy here.

James Dunne
James Dunne
James is the head of content and publishing at MyWallSt. James’ favorite stock is Teladoc because he believes that they are at the forefront of revolutionizing the healthcare industry.