• If you are wondering whether PagSeguro Digital is still attractively priced or if the easy gains are already behind it, looking closely at its valuation metrics can help you frame that question clearly.
• The share price recently closed at US$10.99, with returns of 6.8% over 30 days, 13.7% year to date, 56.0% over 1 year, 27.5% over 3 years and an 81.3% decline over 5 years. This gives a mixed picture of how the market has treated the stock over different timeframes.
• Recent news flow around PagSeguro Digital has largely focused on its role in Brazil's payments and financial technology space and how competition and regulation shape its business outlook. Coverage has also highlighted how these sector themes influence investor sentiment toward the stock, helping to explain some of the recent share price moves.
• On our checks for whether the stock looks undervalued, PagSeguro Digital scores 5 out of 6 on our valuation score. Next, we will walk through what that means across methods like DCF, multiples and peer comparisons, before finishing with a broader way to think about valuation that ties the numbers back to the bigger picture.

Approach 1: PagSeguro Digital Excess Returns Analysis

The Excess Returns model looks at how much value a company can create over and above the return that shareholders require. Instead of focusing on cash flows, it centers on how efficiently equity is used and how that might persist over time.

For PagSeguro Digital, the starting point is a Book Value of US$51.16 per share and an Average Return on Equity of 16.50%. Analysts expect a Stable EPS of US$9.43 per share, based on weighted future Return on Equity estimates from 10 analysts, and a Stable Book Value of US$57.13 per share, based on estimates from 6 analysts.

The required return, or Cost of Equity, is US$5.83 per share. The model estimates an Excess Return of US$3.60 per share, which represents the value created above that required return. When these excess returns are projected and capitalised, the model arrives at an intrinsic value of US$21.13 per share.

Compared with the recent share price of US$10.99, this Excess Returns valuation implies the stock is 48.0% undervalued on this framework.

Result: UNDERVALUED

Our Excess Returns analysis suggests PagSeguro Digital is undervalued by 48.0%. Track this in your watchlist or portfolio, or discover 52 more high quality undervalued stocks.

Approach 2: PagSeguro Digital Price vs Earnings

For profitable companies, the P/E ratio is a useful way to think about what you are paying for each dollar of earnings. This makes it a straightforward check on whether the price you see on screen lines up with the business performance you are actually buying.

What counts as a "normal" or "fair" P/E really depends on how quickly earnings are expected to grow and how risky those earnings are. Higher expected growth and lower perceived risk usually justify a higher P/E, while slower growth or higher uncertainty tend to go with a lower P/E.

PagSeguro Digital currently trades on a P/E of 7.53x. That sits well below the Diversified Financial industry average P/E of 15.78x and the peer group average of 41.71x. Simply Wall St also calculates a proprietary Fair Ratio of 16.42x for PagSeguro Digital, which reflects factors such as its earnings profile, industry, profit margins, market capitalization and company specific risks.

This Fair Ratio can be more informative than a simple peer or industry comparison because it aims to adjust for differences in growth, risk, profitability, size and sector characteristics rather than assuming all companies should trade on similar multiples.

With the actual P/E of 7.53x sitting below the Fair Ratio of 16.42x, PagSeguro Digital screens as undervalued on this multiple based approach.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your PagSeguro Digital Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. Narratives let you attach a clear story to your numbers such as what you think PagSeguro Digital can earn, how its margins may look, and what that means for fair value.

A Narrative is simply your view of a company written into a set of assumptions about future revenue, earnings and margins. These assumptions then feed into a financial forecast and, ultimately, a fair value estimate.

On Simply Wall St, Narratives sit inside the Community page and are designed to be easy to use. You can see how your view on PagSeguro Digital compares with others, and how each Narrative translates into a Fair Value that you can compare with the current share price to help decide whether you want to buy, hold or sell.

Narratives are also updated when fresh information such as new earnings or material news arrives. You might see one PagSeguro Digital Narrative that assumes a relatively high fair value and strong margins, while another assumes a lower fair value with more conservative margins, showing how different investors can reasonably read the same company in different ways.

Do you think there's more to the story for PagSeguro Digital? Head over to our Community to see what others are saying!

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.