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Why StoneCo Stock Jumped 20.1% in May

By Keith Noonan – Jun 2, 2020 at 8:18AM

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The Brazilian payment processing company got a big boost thanks to strong business momentum in the first quarter.

What happened

Shares of StoneCo (STNE 5.07%) rose 20.1% in May, according to data from S&P Global Market Intelligence. The stock faced pressure through much of the month due to the spread of the novel coronavirus in Brazil and that country's weakening currency. The company's valuation, though, got a big boost at the end of the month thanks to better-than-expected first-quarter results. 

^SPX Chart

^SPX data by YCharts.

StoneCo reported Q1 results after the market closed on May 26, delivering impressive payment volume and customer growth and sales that came in well ahead of the market's expectations. For the quarter ending in March, StoneCo posted adjusted earnings per share of roughly 0.58 Brazilian reais and revenue of of 716.8 million reais, while the average analyst estimate had called for earnings of 0.72 reais per share on sales of 669.7 million reais. 

A person using a mobile phone.

Image source: Getty Images.

So what

The exchange rate between the Brazilian real and the U.S. dollar hit a record low in May, but StoneCo's impressive first-quarter results propelled big gains for the stock near the end of the month. The company's revenue climbed 33.8% year over year in the quarter, with the big gains driven by strong client additions and total payment processing volume increases. The company added 50,500 net active clients in the quarter, and total payment volume on its platform climbed 42.1% year over year to reach 37.6 billion reais.

Now what

StoneCo stock made additional ground on the first day of May's trading, with shares climbing 1.8% in the session amid a backdrop of momentum for the broader market. 

^SPX Chart

^SPX data by YCharts.

Despite the big gains last month, StoneCo stock is still down roughly 20% year to date. Challenging economic conditions in Brazil suggest that the stock could continue to see volatile trading, but the company deserves consideration from investors who see promise in payment processing services in the Latin American and Central American markets. 

StoneCo trades at roughly 56 times the average analyst target for this year's earnings and 15.2 times this year's expected sales.

Keith Noonan owns shares of Stoneco LTD. The Motley Fool owns shares of Stoneco LTD. The Motley Fool has a disclosure policy.

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