Just over a year into its run as a publicly traded company, Warren Buffett stock and Brazil-based financial technologist StoneCo (STNE -3.12%) continues its fast-paced expansion. Fourth-quarter 2019 revenue grew 48% to 783 million Brazilian real (or $173 million using exchange rates on March 3, 2020), and adjusted net income was 275 million real ($60.9 million), up 76% year over year and good for a 35% profit margin. Not bad for an upstart fintech outfit.

Cash is still the preferred method of transacting business around the globe -- including in StoneCo's home market -- so the company (Brazil's rough equivalent to Square) can continue to keep its foot on the accelerator. After a successful outing in 2019 and rosy outlook for 2020, this war-on-cash stock looks reasonably priced given its momentum and StoneCo's plans to make further inroads into Brazil's banking system. 

StoneCo's impressive numbers in 2019

StoneCo added a net 226,000 new active clients in 2019, ending the year with 495,000 total. Besides nearly doubling its customer base, it saw total payment volume processed on its platform grow 55%; the take rate (percentage earned per transaction) remained stable at 1.85% (up 0.02 percentage points from 2018).  

Based on a $0.22 U.S. dollar to Brazilian real exchange rate on March 3, 2020, revenue from transaction activity increased 63% in 2019 to $570.6 million. As StoneCo continues to add more users to its payment platform and related software services, the top-line increases are leading to even bigger returns on the bottom line.


Full-Year 2019

Full-Year 2018



$570.6 million

$349.8 million


Gross profit margin



3.9 pp

Operating expenses

$234.3 million

$180.2 million


Adjusted net income

$178.1 million

$67.6 million


Based on a $0.22 U.S. dollar to Brazilian real exchange rate on March 3, 2020. Pp = percentage point. Data source: StoneCo.  

After the big advance in 2019, and using StoneCo's current market cap of $12.0 billion, shares trade for 21 times trailing 12-month sales and 67 times adjusted net income. Those are premium valuations that price in continued momentum for the foreseeable future, but not completely unreasonable valuations, either, considering how fast this company is growing. Based on what StoneCo is planning, shares could actually be quite reasonable.  

A woman behind a desk uses a lime green StoneCo point-of-sale device.

Image source: StoneCo.

More disruptive services in the works

2020 will be another year of self-investment for StoneCo. On the software front, only 135,000 of the company's customer base were making use of its services, so there is room for improvement there. StoneCo has also added new businesses to the payment ecosystem. And then there's the banking side, which is a newer area of disruption for StoneCo. According to CEO Santiago Dos Santos Piau on the last earnings call:

In 2020, we have another big challenge, which is a top priority to us: To become a complete financial platform for our clients. We aim to replace our clients traditional banking relationship over time, and I think we are on track to do so.  

Going from a digital payments processor to full-blown bank is a big leap indeed, but this fintech is already starting its ambitious plans by rolling out software-based services to some of its existing clients. The individual banking solution had 62,000 customers in December, which Dos Santos Piau reported had jumped to 79,000 by the end of January. A unified service covering banking and credit services for businesses is also currently being tested by 10,000 customers.  

Given that Brazil is the world's ninth-largest economy and has a retail banking industry approaching $500 billion in value, disrupting the status quo could be a massive opportunity for StoneCo's small, tech-enhanced bank segment. The company doesn't provide any specific guidance at this point, but assuming it can keep growing at about the 50% rate it did in Q4 in 2020, the premium 21 times price-to-sales ratio doesn't seem so extreme. Plus, the company is currently dumping cash into its new banking segment, so it's reasonable to expect it will also start contributing to the bottom line as it adds new users in the quarters ahead.

Put simply, StoneCo's fast expansion and still massive opportunity is worth the premium valuation. As usual with small growth stocks, I pick up small lots of shares at a time (usually less than 1% of my investable net worth) as I build out a larger position over the longer term. But given StoneCo's solid results to close out 2019, I plan on continuing to buy this Warren Buffett-owned fintech.