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Why Shares of StoneCo Fell 4% Today

By Nicholas Rossolillo – Aug 16, 2021 at 12:17PM

Key Points

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Political uncertainty is the latest worry dragging down stocks in Brazil.

What happened

Stocks in Brazil have been falling in recent days, as measured by a 3.25% decline in the Bovespa index in the last week. One of the country's financial technology leaders is being dragged down with it. Shares of StoneCo (STNE -2.75%) were down 4% as of 11:30 a.m. EDT and have now fallen nearly 13% in the past five trading days alone.

So what

The latest worry weighing on Brazilian stocks is political in nature. Brazilian President Jair Bolsonaro has been making claims that the country's electronic voting system is vulnerable to fraud, and one of Brazil's Supreme Court justices opened an investigation into the claims since no evidence has been provided to substantiate the remarks. In response, Bolsonaro called on the Senate to bring charges against members of the Supreme Court that have been critical of the president's actions. Brazil's next presidential election will take place in 2022.

Person holding a credit card and smartphone while thinking.

Image source: Getty Images.

Additionally, Brazil's economy has been experiencing higher inflation rates this year, and the central bank has aggressively hiked interest rates to try and tame rising prices. For high-growth operation StoneCo, higher interest rates reduce the future value of the company's profitability, which explains the recent sell-off in the stock.  

Now what

The good news is that the drop in StoneCo shares isn't the result of any company-specific news. This is still a fast-growing fintech outfit -- even in spite of Brazil being deeply impacted by the pandemic -- and the sharp reduction in the number of new COVID-19 cases in recent months bodes well for the economy and for StoneCo itself.  

StoneCo will likely report on its second-quarter 2021 financials later this month or in early September. In spite of the political and economic worry at the moment, the business is a top beneficiary of the rapid adoption of e-commerce in Latin America's largest market. Shareholders will want to look for signs that StoneCo's long-term trajectory remains positive as it continues to bring Brazil up to speed in the digital times with its online payments and next-gen financial services software.

Nicholas Rossolillo and his clients own shares of Stoneco LTD. The Motley Fool owns shares of and recommends Stoneco LTD. The Motley Fool has a disclosure policy.

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