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Why DLocal Is Plunging More Than 20% Today

By James Brumley – Nov 17, 2021 at 1:31PM

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The digital payment middleman is driving more growth than the analyst community can effectively predict.

What happened

Shares of DLocal Limited (DLO 3.46%) are down to the tune of 21% as of 12:47 p.m. ET on Wednesday following the release of third-quarter results that fell short of estimates.

So what

Uruguay-based payment platform DLocal had no problem growing its business last quarter. Revenue of $68.6 million was up 123% year over year, producing adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $26.3 million, versus a year-ago EBITDA figure of $12.5 million. Net income of $0.06 per share doubled the figure of $0.03 per share reported for the third quarter of 2020.

Falling chart being drawn on a chalkboard.

Image source: Getty Images.

Investors' problem with DLocal's results, rather, stemmed from missed expectations for a profit of $0.07 per share; topping revenue estimates of $65.1 million just wasn't enough.

Now what

With nothing more than a superficial look at the earnings miss and the stock's subsequent stumble, it would be easy to dismiss DLocal as an investment prospect. Making such a quick assessment, however, would be a mistake. There's far more to the story.

Among the other important aspects of the story is that DLocal's sales, EBITDA, and profits just doubled. That's impressive, but more than that, this sort of enormous growth rate makes it difficult for analysts to pinpoint precise results. Missing per-share earnings estimates by a penny doesn't mean any more than beating estimates by a penny.

Perhaps chief among the other aspects of the story is the fact that the company's shares had already fallen more than 30% from their September high before Tuesday's close, suggesting much of today's earnings miss had already been priced in. The actual headline sparked more selling from those traders that had stuck with it through yesterday. Wednesday's high-volume plunge, however, in some ways seems to be a capitulation that will now pivot back into an uptrend.

It's still not a name for more conservative portfolios, to be clear. But, for speculators willing to keep daily tabs on it, this big dip is an enticing entry opportunity.

James Brumley 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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