These two titans in the investment world have different philosophies, but as more of the economy migrates online, it's inevitable that their stock picks would begin to overlap. Warren Buffett's Berkshire Hathaway historically likes companies with strong cash flow and earnings, whereas many of Cathie Wood's various ARK Invest asset management funds invest in technology stocks with the potential to change the world -- whether they're profitable or not. 

But they both own shares in StoneCo Ltd (NASDAQ:STNE), a Brazilian e-commerce and payments provider helping businesses build digital presences. This year has been tough for the company as Brazil continues to struggle with the pandemic, and the stock price is down about 34% year-to-date -- but it's delivering strong growth in key metrics, so now might be a great opportunity to buy.

A florist arranging and selling flowers to a customer

Image source: Getty Images.

Digitizing small businesses

StoneCo is a one-stop shop for financial technology solutions, giving Brazilian businesses the tools they need to move away from cash payments and into the digital economy. It helps to facilitate transactions both in-store with Point-of-Sale (POS) systems and online through e-commerce platform Pagar.me, which offers checkout and social commerce integrations.

The Stone brand also offers small business financing to assist with growth, with flexible repayments tied to sales.

Besides the mainstream sales solutions, Stone also operates a brand called TON that provides similar services specifically to microbusinesses and self-employed owners who are just getting started. It offers discounted fees, no recurring monthly hardware rental fees, and digital accounts to receive payments for entrepreneurs who aren't in the banking system yet. This segment is growing rapidly, with over 190,000 clients -- 76,000 of which were added in the last quarter alone.

In May of this year, StoneCo entered a partnership with Banco Inter, a 100% digital bank in Brazil with 10.2 million customers. The deal involved StoneCo taking a 4.99% stake in the bank for $471 million and commencing technological integrations expected to be accretive to both organizations. For example, StoneCo merchants will have the opportunity to connect to the bank's digital InterShop platform, which is an app-based directory of sellers. Plus the bank will offer StoneCo clients access to fixed-income investments to help the clients earn income on cash they generate. 

Financial performance

Despite major pandemic-related headwinds, StoneCo has done a great job generating growth. It navigated these challenges while capitalizing on the chance to move more businesses online -- a trend that should stick once COVID-19 subsides (if other countries are any indication). 

Growth in total clients is most significant, as it indicates the need for StoneCo's suite of products and services. It is estimated that 36% more Brazilians shopped online in 2020 compared to 2019, and this led to a 60% increase in StoneCo's total payment volume for the year. 

The pandemic was the likely culprit, but it highlights the rapidly growing opportunity for the company -- with growth continuing in the first quarter of 2021.

Metric

Q1 2020

Q1 2021

Growth

Active Payment Clients (excluding-TON)

537,000

722,300

34.5%

TON Active Clients

23,200

190,300

718.6%

Total Payment Volume

$6.6 billion

$9.0 billion

35.5%

Revenue

$126.7 million

$153.4 million

21.1%

Earnings Per Share

$0.102

$0.106

3.3%

Data source: Company filings. Amounts in USD, converted from Brazilian Reals using exchange rates from March 31, 2021.

StoneCo is doing a great job increasing engagement among its clients. Once they're on board with a payments product, they're increasingly likely to jump across to use banking and credit products, too. The percentage of small- to medium-sized businesses using multiple solutions grew to 41% in Q1 2021, compared to just 14% in Q1 2020. Not only is the company growing its client base rapidly, but it's also extracting more business from them. 

On the credit side, StoneCo has provided $336 million in working capital financing to clients as of Q1 2021, up 472% for the year.

Looking forward

Emerging markets like Brazil are often a great source of growth, since they can be slightly behind economically and therefore grow quickly using technologies established in the developed world. With the numbers StoneCo is delivering, it's no surprise it has attracted both value and growth investors like Berkshire and ARK. 

Analysts are expecting the company to deliver $0.96 in earnings per share for 2021, which means the stock currently trades at 61 times this year's earnings. It's on the expensive side, but the projected growth is up there with that of even the strongest tech stocks.

Metric

2021 (Estimate)

2022 (Estimate)

Growth

Revenue

$1.04 billion

$1.60 billion

53%

Earnings Per Share

$0.96

$1.60

66%

Data source: Yahoo! Finance.

If it delivers, this stock could generate big returns for long-term investors as the pandemic improves -- especially if you invest now while its price is down 34% for the year. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.