StoneCo STNE shares have plunged 55.2% over the past year against the Zacks Internet - Software industry’s growth of 31.3% and the broader Zacks Computer & Technology sector’s return of 30.6%.

The company has underperformed its industry peers, including Five9 FIVE, Innovid CTV and Smartsheet SMAR, over the same time frame.

While Five9 has lost 46% over the past year, CTV and Smartsheet have rallied 114.1% and 17.4%, respectively.

The underperformance can be attributed to increased competition from banks moving down market to serve Small and Medium Enterprises.

One Year Performance

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However, STNE is benefiting from continued momentum in its primary sectors, notably within the financial services and an expanding credit portfolio.

STNE Benefits From Robust Growth in the MSMB Segment

StoneCo’s robust solutions in the financial services segment, particularly its Micro, Small and Medium-sized Businesses (MSMB) offerings, continue to be a major growth driver for its success.

STNE’s MSMB segment saw 20% year-over-year growth in total payment volume, reaching BRL 114 billion in the third quarter of 2024. This performance was attributed to strong demand in Brazil’s small business sector where the need for digital payment solutions has been rising rapidly.

As a result of this demand, the number of active MSMB clients grew 21% year over year, totaling nearly four million clients. This growth was driven by increased engagement from businesses using StoneCo’s payments and banking solutions.

The MSMB take rate reached an all-time high of 2.58% for the quarter, surpassing the annual guidance of 2.49%, due to a stable competitive environment, improved client engagement and a focus on healthy unit economics.

The adoption of PIX QR codes in the third quarter of 2024 grew significantly, with volumes increasing by a factor of 2.4x compared to the same quarter last year. The success of PIX, a Brazilian instant payment system, reflects the growing trend of digital payments and the shift toward more efficient, real-time payment methods.

STNE Benefits From Credit Portfolio Expansion

StoneCo’s credit portfolio is another area of impressive growth. The credit portfolio grew nearly 30% quarter over quarter, reaching BRL 923 million.

The company highlighted that non-performing loan levels remained within its internal risk appetite, indicating effective credit risk management and a strong credit portfolio.

STNE continued to focus on merchant solutions, which made up the majority of the credit portfolio. In the third quarter of 2024, STNE launched Giro Facil, a revolving credit facility, and enhanced its credit card offerings, particularly for micro-clients, driving growth in the credit segment.

STNE Offers Strong FY24 Guidance

With a strong foothold in the MSMB and banking segments, an expanding credit portfolio, and innovative fintech solutions, STNE is at the forefront of Brazil’s digital transformation.

For 2024, STNE expects MSMB TPV to exceed R$412 billion, suggesting an increase of more than 18% compared with 2023 levels.

Additionally, client deposits are anticipated to surpass R$7 billion, reflecting a year-over-year increase of more than 14%. 

As for monetization, the credit portfolio is projected to exceed R$800 million, showing 2.6 times increase from the previous year’s figure. MSMB take rates are expected to exceed 2.49%, indicating an increase of more than 4 bps.

STNE Earnings Estimates Show Mixed Trend

For the fourth quarter, the Zacks Consensus Estimate for revenues is pegged at $621.47 million, indicating a year-over-year decline of 5.25%.

The Zacks Consensus Estimate for fourth-quarter 2024 earnings is pegged at 35 cents per share, which decreased by a penny in the past 30 days.

The Zacks Consensus Estimate for 2024 revenues is pegged at $2.42 billion, indicating a year-over-year increase of 0.17%.

The Zacks Consensus Estimate for 2024 earnings is pegged at $1.19 per share, which has decreased 1.6% in the past 30 days.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

STNE Shares Trading Cheap

StoneCo shares are currently trading at a significant discount to the industry average, making the stock more attractive on the valuation front. The Value Score of B suggests STNE is trading at a discount. 

STNE has a forward 12-month P/S of 0.92X, which is lower than the Zacks Internet - Software of 2.95X and STNE’s five-year median of 2.42X.

Price/Sales (F12M)

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What Should Investors Do With STNE Stock?

Despite growth in primary sectors, notably within the financial services and an expanding credit portfolio, STNE is suffering from challenging macroeconomic uncertainties and increased competition in digital payment solutions and the financial services sector, which is negatively impacting STNE’s growth.

STNE currently carries a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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