StoneCo Eyes 18% EPS Growth in 2025: What's Fueling It?

StoneCo (STNE) anticipates an 18% rise in adjusted EPS and a 14% increase in adjusted gross profit for 2025, driven by strong Q1 performance where EPS grew 36% and gross profit jumped 19% year-over-year. The company is prioritizing profitability over transaction volume growth through repricing strategies and margin improvements via a cash sweep plan, shifting retail deposits into on-platform time deposits; StoneCo's credit portfolio has expanded to R$1.4 billion with low default rates. Year-to-date, STNE shares have gained 72.2%, significantly outperforming the industry's 10.7% growth.

Analysis

StoneCo Ltd. (STNE) has presented a robust financial outlook for 2025, projecting an 18% year-over-year growth in adjusted EPS and a 14% increase in adjusted gross profit. This guidance is substantiated by a strong first-quarter 2025 performance, where adjusted EPS surged 36% and gross profit climbed 19%, significantly outpacing the company's full-year targets. This outperformance is attributed to disciplined marketing expenditure, effective repricing strategies, and enhanced operational efficiency. StoneCo is strategically prioritizing profitability over sheer transaction volume, a shift that may lead to a temporary slowdown in MSMB TPV growth but aims to secure its 14% TPV CAGR target by 2027. Key margin enhancement initiatives include a cash sweep plan, which successfully converted R$6.3 billion of R$8.3 billion in retail deposits to on-platform time deposits in Q1 to reduce financing costs, and the expansion of its credit portfolio to R$1.4 billion, characterized by low default rates. Consequently, the gross profit-to-TPV ratio improved by 5 basis points to 1.23% in the first quarter. Year-to-date, STNE's shares have appreciated by 72.2%, markedly outperforming the industry's 10.7% growth and the S&P 500's 1.2% rise. The stock's valuation appears attractive, trading at a forward 12-month P/E of 9.04X, substantially below the industry average of 39.01X, and it holds a Zacks Rank #1 (Strong Buy), with consensus earnings estimates trending upwards. In comparison, competitor PagSeguro Digital Ltd. forecasts 7-11% gross profit growth and 11-15% EPS growth for 2025, while DLocal Limited projects 20-25% gross profit growth.

Key Decisions for Investors

• Investors should consider StoneCo's strong execution capabilities, evidenced by its Q1 2025 outperformance and robust 2025 guidance for 18% EPS growth, which is supported by strategic repricing and successful margin expansion initiatives such as the cash sweep program.
• The current valuation, with a forward P/E of 9.04X significantly below the industry average, warrants attention, especially given the company's significant year-to-date stock appreciation of 72.2% and its clear focus on enhancing profitability.
• It is advisable to monitor the impact of StoneCo's repricing strategy on MSMB TPV growth relative to its 14% TPV CAGR target by 2027, and assess the ongoing performance and risk profile of its expanding credit portfolio.