Breaking down StoneCo stock’s fundamentals and weighing risk-reward potential
StoneCo Ltd. (NASDAQ:STNE) is a provider of financial technology solutions that operates in Brazil. STNE offers an end-to-end cloud-based technology platform to conduct e-commerce across in-store, online, and mobile channels. StoneCo has designed a cloud-based technology platform that helps clients connect, get paid, and grow their businesses while meeting the rapidly changing demands of omni-channel commerce. STNE's platform enables users to develop, host, and deploy its solutions to their businesses. This afternoon, STNE was last seen up 0.6% at $50.74.
StoneCo will issue its second-quarter earnings this Monday, August 30. Checking back on recent history at the earnings confessional, StoneCo has beat earnings expectations on two of its last four earnings reports. The two earnings misses occurred on the two most recent quarterly reports. At this time, analyst consensus predicts the company will release earnings of $1.12 per share on Monday. This marks a significant increase quarter-over-quarter.
For Q2 of 2020, the fintech company beat analyst estimates by a margin of $0.02, reporting an EPS of $0.10. For Q3 of 2020, StoneCo's EPS increased to $0.19, beating expectations by a margin of $0.03.For Q4 of 2020, STNE posted another increase in earnings, rising to $0.22 per share but still missed estimates by a margin of $0.01. For Q1 of 2021, StoneCo reported an EPS of $0.12 and missed expectations by a margin of $0.06.
StoneCo stock is flat year-over-year and down 47% since reaching a record high of $95.11 in early February. Additionally, shares of STNE have decreased 39% year-to-date, but has added 8% since hitting its annual low of $46.60 in November.
From a fundamental point of view, the biggest issue with StoneCo stock lies in its extremely high valuation. STNE currently trades at a price-earnings ratio of 92.84. However, StoneCo stock also has a forward price-earnings ratio of 49.51, signaling that immense growth is expected for the company. This is no surprise considering StoneCo’s impressive growth rate thus far. Since fiscal 2017, STNE's revenues have increased over 300%.
The equity also has a decent balance sheet with approximately $11.2 billion in cash and $6.2 billion in total debt. Overall, StoneCo stock promises high growth in the long-term despite its current valuation, making STNE's recent dip an excellent buying opportunity for growth investors.
There is plenty of room for upgrades moving forward, too. Heading into today's trading, all but one of the seven analysts in coverage sport a tepid "hold" rating on the stock. In other words, an unwinding of this bearish sentiment could sent the cloud giant higher.