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Why DLocal Stock Is Sinking Today

By John Ballard – Oct 19, 2021 at 1:19PM

Key Points

  • DLocal expects third-quarter results to show total payment-volume growth between 211% to 215% year over year.
  • That represents a deceleration compared to the 319% growth reported in Q2.
  • After the drop in price, the stock still trades at an astronomical price-to-sales valuation.

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Investors were looking for stronger growth out of this global-payments platform provider.

What happened

DLocal Limited (DLO 2.12%) delivered preliminary results for the third quarter that showed year-over-year growth in total payment volume (TPV) decelerating over the prior quarter. Shares of DLocal were down 8.7% as of 12:10 p.m. EDT on Tuesday.

The stock is still up nearly 70% since its initial public offering earlier this year.

DLO Chart

DLO data by YCharts.

So what

The company expects revenue to be between $67 million to $68 million, which is higher than the consensus analyst estimate of $64 million. But it seems investors were more concerned about DLocal's expectation for TPV growth to land in the range of 211% to 215% after posting 319% growth in Q2. DLocal attributes the growth in the third quarter to continued gains from enterprise merchants across several channels, including streaming, ride-hailing, advertising, retail, software-as-a-service, and travel. 

However, the company said that adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin for Q3 should be between 37.3% to 38.2%. That's down from 40.6% in Q2 2020 and 44% in Q2 2021. The lower margin should bring net profit to between $18 million to $19 million, which is more than double the year-ago quarter.

A business person using a mobile phone.

Image source: Getty Images.

Now what

Despite the slower rate of growth, DLocal is making headway in a massive market, where it provides cloud-based payment services in over 30 countries around the world. It generated total payment volume of just $2.1 billion in 2020, yet DLocal is going after an addressable market worth over $1 trillion. The company has recently expanded its offering with fraud-detection capabilities and launched its services in new countries, including Malaysia and Vietnam in Q2. 

Still, investors are closely watching quarter-to-quarter growth trends for this recent IPO stock, given the highly competitive nature of this wide-open market. Shares sport a very high price-to-sales ratio of 120. At that valuation, the smallest misstep by the company is going to cause volatility in the share price.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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