StoneCo stock performance snapshot

StoneCo (NasdaqGS:STNE) has been drawing attention after a mixed stretch for the stock, with the price near $11.33 and returns down over the past month and past 3 months but positive over the past year.

The share price has been under pressure in recent months, with a 90 day share price return down 32.56% and the year to date share price return down 22.87%. At the same time, the 1 year total shareholder return is positive at 2.35%, suggesting longer term holders have seen a different experience compared with recent short term momentum.

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With the stock down sharply over 90 days yet trading at a reported discount to some valuation estimates, is StoneCo a mispriced fintech opportunity right now, or is the market already factoring in its future growth potential?

Most Popular Narrative: 44.2% Undervalued

StoneCo's most followed valuation narrative puts fair value at $20.29 versus the last close at $11.33, framing the stock as trading well below that estimate while hinging heavily on how capital is recycled back into the business and to shareholders.

Focused divestment of capital-intensive software assets has freed up substantial capital (about 25% of market capitalization), enabling StoneCo to redeploy resources to higher-growth, higher-margin financial services and to return excess capital via share buybacks, positively impacting EPS and net margins.

Curious what earnings profile supports that fair value gap, and how much relies on margin expansion versus revenue growth or future buybacks? The narrative lays out a detailed path, including assumed profitability, valuation multiples and required returns that you may want to compare with your own expectations.

Result: Fair Value of $20.29 (UNDERVALUED)

However, this depends on Brazil continuing to support small merchants and on credit risks not rising to a level where higher loss provisions reduce margins.

Next Steps

With sentiment clearly split between risks and upside potential, this is a good time to look through the numbers yourself and decide where you stand on StoneCo. To balance both sides of the story and pressure test your view against the data, take a closer look at the 3 key rewards and 2 important warning signs.

Looking for more investment ideas?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.