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Why Marqeta, DLocal, and StoneCo Took a Header Today

By Nicholas Rossolillo – Jan 5, 2022 at 12:19PM

Key Points

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The interest rate conundrum rears its ugly head again.

What happened

Fast-growing technology stocks were sharply lower today following the release of minutes from the Federal Reserve's last meeting. Indications point to the central bank raising interest rates and trimming its balance sheet to try to fight inflation early this year.  

Fintech stocks were hit especially hard. Software-based card issuing and payments company Marqeta (MQ 1.25%) was down 11%; Uruguayan start-up DLocal (DLO 5.05%), which specializes in cross-border business for merchants trying to enter emerging markets, tumbled 10%; and Brazilian digital payments company StoneCo (STNE 7.17%) fell 7.4% today as of market close.

A person inputting credit card info into a laptop.

Image source: Getty Images.

So what

As a reminder, higher interest rates lower the value of future cash flows, which in turn lowers the short-term value of a stock. Since these three fintech companies are growing at an especially fast pace and generate little to no profitability right now (but expect to be highly profitable later on), share prices are especially sensitive to expected changes in interest rates. With rising rates a persistent problem for the better part of a year now, all three companies have fallen from all-time highs, even as revenue for each has continued to climb.

MQ Revenue (TTM) Chart

MQ Percent Off All-Time High Chart

Data by YCharts.

Now what

The dilemma facing shareholders of all three companies is that, though each is still expanding at a respectable rate, rising interest rates will keep a lid on the stocks' upside potential for now. How long will this dynamic last? It depends on how high rates rise, and how "cheap" each stock gets. But if Marqeta, DLocal, StoneCo, and their high-growth fintech peers keep expanding their reach in the massive global financial services industry, eventually market sentiment will change and shares will gradually rise again.

That's why making smaller purchases of a stock over time (perhaps once a month or once a quarter) is important when investing in small, fast-growing, but loss-generating companies like this. If you believe the long-term potential for these three businesses remains intact, by all means consider nibbling here. Just remember to do so patiently and in a measured way.

Nicholas Rossolillo and his clients own Stoneco LTD. The Motley Fool owns and recommends Stoneco LTD. The Motley Fool has a disclosure policy.

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