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Why StoneCo Stock Jumped 21.2% in April

By Keith Noonan - May 3, 2020 at 12:00PM

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The Brazilian fintech company has plenty of growth potential, but investors should be prepared for a bumpy ride.

What happened

Shares of StoneCo (STNE -0.84%) climbed 21.2% in April, according to data from S&P Global Market Intelligence. The Brazilian payment processing stock saw significant recovery last month after falling 45.4% in March, but the company's share price is still down roughly 36% year to date.

^SPX Chart

^SPX data by YCharts

StoneCo got hit hard in March as the novel coronavirus' spread prompted widespread sell-offs and hurt the exchange rate for Brazil's currency, but momentum for the broader market helped the stock recover in April. The company's share price managed to post substantial recovery in the last month, despite the exchange rate between the Brazilian real and the U.S. dollar falling to record lows.  

A woman holding a credit card and a mobile phone.

Image source: Getty Images.

So what

StoneCo's long-term outlook remains promising, and momentum for e-commerce in Latin America and South America combined with people in the regions increasingly opting to use digital and card-based payments instead of cash present substantial long-term tailwinds for the company. However, investors have to keep in mind that currency factors and the overall economic climate on the heels of the novel coronavirus pandemic could lead to uneven performance. 

Now what

The Brazilian real has weakened roughly 28% against the U.S. dollar over the last year. The exchange rate for Brazil's currency hit a record level of 5.40 reals to one U.S. dollar on April 22, and the strength of the country's currency remains in the neighborhood of record lows. Brazil's economy has been shaky in recent years, and conditions created by the coronavirus pandemic will likely impede economic growth in the near term.

On the other hand, I'm bullish on StoneCo's long-term prospects and bought shares in mid-April. I expect the company's stock will continue to see volatile trading over the next year, but I also believe that it's a worthwhile buy-to-hold stock for risk-tolerant investors looking for growth plays in international markets and payment processing services.

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