Shares of Brazilian digital payments company PagSeguro Digital (PAGS 1.87%) plunged 30% in November, according to data provided by S&P Global Market Intelligence. The company released solid third-quarter earnings in November, but it followed a month with bad news for investors, and general market volatility specifically targeted financial stocks.
PagSeguro is a Brazil-based digital payments company similar to PayPal Holdings. Its services run the gamut of digital finance, including merchant accounts and point-of-sale devices, peer-to-peer payments, prepaid debit cards, and digital bank accounts.
In the third quarter, revenue increased 56%, and total payment volume increased 86%. It added 1 million PagBank users for a total of 12.2 million, and another 300,000 merchants. Earnings per share grew 26% to 0.97 Brazilian reals, or $0.22, matching analyst expectations.
In October, the Brazil Central Bank (BCB) said that it would cap interchange fees for prepaid debit card transactions, which would mean that PagSeguro's ability to make money there would be capped as well. Management's first response to the announcement was to assure investors that this was only a small part of a large strategy with many revenue streams, and that "BCB efforts to promote competition is seen by PAGS as an opportunity." It followed that up by saying that not only would any impact to sales be negligible, but that since PagSeguro also pays interchange fees, the capped fees on its side would balance out lost revenue.
That did give a temporary lift to PagSeguro stock, but it got slammed again in November due to broader market fears about inflation and the omicron variant.
PagSeguro is demonstrating impressive growth, and it operates in a country with one of the largest populations in the world. Brazil is ripe for disruption, with only a handful of banks and a large subsection of underbanked people. The company's services include catering to this subsection with a product that allows digital payments without a bank account.
The market has not been kind to PagSeguro despite its successes. It's down 54% year to date, and shares trade at less than 40 times trailing-12-month earnings, which is low for a growth stock. That can be viewed as an opportunity for long-term investors, but expect volatility in the short term.