Shares of Brazilian fintech StoneCo (STNE 2.38%) rallied 8% today as of market close. The beleaguered digital-payments firm has been struggling from a combination of business missteps (e.g., the temporary freezing of its small-lending segment) and Brazil's economy dipping back into recession. Though today's rally is a welcome relief, the stock is down 80% in 2021 with just a day left until the new year.
Ever since reporting strong revenue growth but a steep loss (due to a one-time write-down on investment value) for Q3 2021, there's been little in the way of good news to lure investors back. On the contrary, early in December it was reported that Brazil's GDP fell 0.1% year over year in the third quarter, stalling out the country's progress in recovering from the early effects of the pandemic. High inflation and a severe drought have taken their toll on the agriculture-heavy economy and cast shade at StoneCo.
For all of the negativity surrounding the company right now, including the ongoing freeze in Stone's tech-enhanced credit segment that will continue to impact overall year-over-year revenue growth, this is still a fast-growing company that is helping modernize financial services for small- and mid-sized businesses in Latin America's largest country. In fact, total active digital-payments clients more than doubled year over year in Q3 to 1.39 million.
It's going to be a tenuous journey from here given the uncertainty surrounding Brazil's macroeconomic situation, but often the best time to start slowly purchasing a stock is when the news is bleak and an economy is down in the dumps. Remember, stocks are valued on future expectations, and the moment a ray of sunshine starts to peek through the clouds, StoneCo could be due for a much more significant rally higher.
Nevertheless, bear in mind this will likely remain an above-average volatile stock, and a seemingly depressed share price can always go lower than we might think possible. Invest accordingly.