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Why Buffett-Owned StoneCo Stock Plunged 30% in April

By Beth McKenna - May 8, 2019 at 8:21AM

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The Brazilian financial technology stock got walloped by investors' fears of more formidable competition.

What happened

Shares of StoneCo (STNE 5.87%), a Brazilian financial technology company that famed investor Warren Buffett recently added to Berkshire Hathway's (BRK.A 2.10%)(BRK.B 2.12%) holdings, plummeted 30% in April, according to data from S&P Global Market Intelligence. The S&P 500 index returned 4.1% last month.

StoneCo stock is up 47.1% in 2019 through May 7, and up 12.9% from its late-October 2018 initial public offering (IPO).

Young man and woman behind the counter of what looks like an eatery or coffee shop and looking at a laptop screen.

Image source: Getty Images.

So what

We can attribute StoneCo stock's poor April performance to two main catalysts. The biggest one was the April 18 news that large Brazilian bank Itau Unibanco Holding SA (ITUB 0.92%) will begin to advance credit card payments to small and medium-sized merchants. Shares of StoneCo dropped like a rock, plunging 23.7% on this day.

As my colleague Matt Frankel wrote at the time, "Itau's card-processing unit, Rede, will pay merchants in just two days, much faster than the 30-day industry standard. This could certainly put pressure on other payment processors in the Brazilian market, including StoneCo."

The secondary catalyst, as I previously wrote, was "the company's announcement of a follow-on offering of 19.5 million shares at $40.50 per share" on April 3. "The proceeds from the sale are going to the selling shareholders, not the company. In other words, some early shareholders -- the company went public in October -- are taking some of their profits off the table." Shares fell 8.7% on this news. 

STNE Chart

Data by YCharts.

Now what

Itau's move increases the competitive environment in which StoneCo operates, which could slow down StoneCo's growth unless it counters with some moves of its own.

For the year, Wall Street is expecting StoneCo to grow revenue and earnings per share about 61% and 117%, respectively, year over year.

 

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Stocks Mentioned

StoneCo Ltd. Stock Quote
StoneCo Ltd.
STNE
$10.28 (5.87%) $0.57
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$478,669.51 (2.10%) $9,864.47
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$319.11 (2.12%) $6.61
Itaú Unibanco Holding S.A. Stock Quote
Itaú Unibanco Holding S.A.
ITUB
$5.46 (0.92%) $0.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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