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Why PagSeguro Digital Stock Fell 10.5% Last Month

By Keith Noonan – Updated Oct 8, 2020 at 5:02PM

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The Brazilian fintech's share price has experienced some big swings in 2020, but its future remains promising.

What happened

Shares of PagSeguro (PAGS 1.54%) slumped 10.5% in September, according to data from S&P Global Market Intelligence. Despite that pullback, the Brazilian payment-processing company's share price is still up by roughly 20% year to date. 

^SPX Chart

^SPX data by YCharts

PagSeguro lost ground last month amid a market sell-off that hit many growth-dependent tech stocks. Surging numbers of new confirmed coronavirus cases in many European countries deepened investors' concerns that the road to global economic recovery could be longer than anticipated, and the inability of congressional negotiators and the White House to come to terms on a new U.S. stimulus bill added to the uncertainty. The company's share price also seems to have taken a hit following a ratings downgrade from Goldman Sachs. 

A woman holding a credit card and a mobile phone.

Image source: Getty Images.

So what

Goldman Sachs analyst Tito Labarta published a note on Sept. 9, downgrading the firm's rating on PagSeguro from buy to neutral, and cutting its one-year price target on the stock from $47 to $42 per share. Labarta cited the company's reduced take rate on payment processing transactions and its rising expenses connected to growth initiatives as reasons for the downgrade.

While the pandemic and social-distancing efforts have prompted a surge in the use of payment-processing services in e-commerce transactions, the overall situation has meant a more challenging growth environment for PagSeguro. Its transaction volume from brick-and-mortar businesses and other sources has declined, which is weighing on the business, but the company's long-term outlook remains promising. 

Now what

PagSeguro stock has shown positive momentum in October -- it's up by roughly 4.5% in the month so far.

PAGS Chart

PAGS data by YCharts

Challenging economic conditions in Brazil and other Latin American countries will make it more difficult for PagSeguro to grow in the near term. However, the fintech company is in good shape to weather these headwinds, and the business should have plenty of room for growth as the adoption of payment processing services in its core markets expands. 

PagSeguro has a market capitalization of roughly $13.5 billion and trades at approximately 51 times this year's expected earnings. 

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends PagSeguro Digital. The Motley Fool has a disclosure policy.

Stocks Mentioned

PagSeguro Digital Stock Quote
PagSeguro Digital
$8.93 (1.54%) $0.14

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