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Why StoneCo Stock Rose 22% in June

By Jon Quast – Jul 7, 2020 at 10:35AM

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StoneCo quickly returned to growth as Brazil relaxed coronavirus guidelines. And the country reopened more activities in June.

What happened

Shares of Brazilian digital-payments company StoneCo (STNE 0.40%) rose 22.3% in June, according to data provided by S&P Global Market Intelligence. The company didn't report anything during the month. But Brazil's economy continues to reopen, crucially for StoneCo's business.

Helped by June's strong return, StoneCo stock has returned to where it started 2020, marginally beating the S&P 500.

STNE Chart

STNE data by YCharts

So what

StoneCo reported first-quarter earnings near the end of May. While its business plummeted as COVID-19 became a pandemic, it quickly jumped on the path toward recovery. Total payment volume (an important metric for fintech stocks) was up 9% in April and 23% in the first half of May. It's a clear demonstration of StoneCo's ability to recover as Brazilian economic activity normalizes.

Brazil is second only to the United States in coronavirus cases. Nevertheless, the country is currently operating under a phased reopening plan. Some major Brazilian states, including Sao Paulo and Amazonas, are already allowing activity to resume at bars and religious gatherings. 

So long as people are out and about, there's a good chance small and medium-size businesses (StoneCo's primary customers) are recovering in Brazil. In that scenario, StoneCo is likely back to growth, explaining the stock's upward move in June. 

A dollar bill is folded into the shape of an upward pointing arrow.

Image source: Getty Images.

Now what

At the height of the stock market crash in March, StoneCo stock traded at a price-to-earnings ratio below 30 -- the cheapest shares have ever been by far. That shows just how pessimistic investors were about StoneCo's short-term business prospects. However, Brazil's leaders pushed for a quick reopening, reigniting economic activity and StoneCo's growth. And the stock could have more upside, so long as the country doesn't lock its citizens down again.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool owns shares of Stoneco LTD. The Motley Fool has a disclosure policy.

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