Fintech Tailwind and Cheap Valuation Make StoneCo a Buy Today

StoneCo (STNE) shares have surged 54.9% in the last three months, driven by strategic repricing that boosted Q1 gross profit by 19% and EPS by 36%. The company's client deposits rose 38% to R$8.3 billion, and PIX transactions jumped 95%, now monetized to offset card usage declines. Trading at 9.26X forward earnings, below its historical averages and industry peers, StoneCo is considered undervalued with an average analyst price target suggesting an 11.6% upside.

Analysis

StoneCo Ltd. (STNE) has demonstrated significant operational strength and market outperformance, with its shares surging approximately 54.9% in the past three months, substantially exceeding the Internet–Software industry's 4.3% gain and the S&P 500's 2.4% improvement, as well as key fintech peers PagSeguro Digital (PAGS) and DLocal Limited (DLO) which rose 30.9% and 18.2% respectively. The company's first-quarter 2025 results underscore this momentum, with a strategic repricing initiative contributing to a 19% year-over-year increase in gross profit, surpassing its annual guidance of 14%, and a 36% year-over-year rise in earnings per share, doubling the projected full-year growth pace. Financially, StoneCo's client deposits grew 38% year-over-year to R$8.3 billion, with a substantial R$6.3 billion in time deposits under its cash sweep strategy, thereby reducing funding costs. Furthermore, the 95% jump in PIX transactions, now monetized similarly to debit payments, is effectively offsetting declines in card usage and bolstering deposit inflows. Despite this strong performance and positive operational trends, StoneCo's stock trades at a forward P/E ratio of 9.26X, considerably below its five-year high of 87.87X, its median of 21.13X, and the industry average of 37.60X, suggesting a discounted valuation. Analysts' average short-term price target indicates an 11.6% upside from current levels. The company is well-positioned within the rapidly expanding global fintech market, projected to grow at a 16.2% CAGR to $1.12 trillion by 2032, with its business model aligning with key trends such as cloud computing, AI-driven fraud detection, and mobile-first financial services, particularly in emerging markets like Brazil.

Key Decisions for Investors

• Investors should consider StoneCo's robust Q1 2025 performance, driven by successful repricing strategies and the effective monetization of its rapidly growing PIX transaction volume, as strong indicators of its growth and profitability trajectory.
• Given StoneCo's current forward P/E ratio of 9.26X, which is significantly below its historical averages, industry peers, and in light of an 11.6% potential upside based on average analyst price targets, the stock presents a potentially undervalued investment opportunity.
• Monitor the continued growth in client deposits, the expansion and monetization of PIX transactions, and the company's ability to maintain margin strength through its pricing power, as these are key drivers for sustaining its current momentum within the burgeoning Latin American fintech sector.