What happened
Shares of Brazilian fintech leader StoneCo (STNE -3.50%) were rising sharply today, up over 15% as of 11:46 a.m. ET.
StoneCo had an absolutely brutal 2021, as high inflation plagued Brazil -- only without the economic growth we've enjoyed here in the United States. Economic forecasters expect only 0.31% economic growth this year despite high inflation -- a scenario known as stagflation.
As a result, StoneCo was down a nauseating 80% over the past 12 months. Yet as we turn the page on 2021, it appears investors are giving StoneCo a fresh look, too, perhaps sensing a bargain.
Image source: Getty Images.
So what
There wasn't any company-specific news today, but since StoneCo is a fintech company that makes money from payment fees as well as loans to businesses, it's sensitive to macroeconomic conditions.
This morning, U.S. Food and Drug Administration (FDA) commissioner Dr. Scott Gottlieb went on CNBC's Squawk Box and predicted the recent wave of the omicron coronavirus variant would come and go quickly. Gottlieb sees the current wave cresting in the Northeast, an indication that cases could come down over the next couple weeks. By the end of the month, the U.S. could be through the majority of this omicron wave. That would mirror the experience in London, which was one of the first major cities to experience the omicron variant.
A better-than-feared scenario on omicron would remove one obstacle to economic growth, which could benefit economically sensitive stocks like StoneCo. And since StoneCo was so beaten-down at the end of last year, likely augmented by tax loss selling in December, it roared back in a big way on Monday.
Now what
Even with Monday's bounce, StoneCo is still down a ton from its highs. Meanwhile, the company's falling profits could start to reverse upward this year. The rates StoneCo pays on its own debt rose last year, before it raised rates to customers, so margins came down a lot. Management has been slow to raise interest rates on the loans it makes to its merchants amid a difficult time in Brazil's economy, but has indicated it would do so. Additionally, management also invested heavily in acquiring new customers and developing new products last year, causing margins to plummet even further.
But in 2022, those trends could reverse. Management should raise rates to a fair price to customers, and investments in customer acquisition could begin to pay off in the company's revenue and earnings. If the two big 2021 negatives turn positive in 2022, StoneCo's Monday surge could just be the beginning.
