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Why StoneCo Shed 80% of Its Value in 2021

By Jennifer Saibil – Jan 10, 2022 at 10:45AM

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The Brazilian fintech company is still posting high growth.

What happened

It's been a tough, and I mean really tough year for Brazilian fintech company StoneCo (STNE 2.38%). Its stock shed 80% of its value, according to data provided by S&P Global Market Intelligence. By the end of the year, it was trading at roughly half the level of its first-day closing price, and close to penny-stock status, at just over $16 a share. The company shared a mixed earnings report recently, and it's dealing with inflation and macroeconomic changes. But it's hard to see why the stock was affected this strongly.

The drop was even more pronounced when compared with the overall market gain in 2021, with the S&P 500 gaining 27% over the same period.

^SPX Chart

^SPX data by YCharts

So what

StoneCo started off with a bang in 2021, reaching an all-time high of $92 in February of last year. The company, which is based in Brazil, provides financial technology solutions for entrepreneurs, similar to Block (SQ 4.28%)(formerly Square) in the U.S.

A woman using a mobile phone and writing on a paper in a studio.

Image source: Getty Images.

The company did some massive fundraising last year to generate higher growth, issuing credit worth 500 million Brazilian reals (just over $100 million) last January to upgrade its small business-focused platform. In the first quarter, it increased its sales force by 24%, marketing investments by 33%, customer service and logistics head count by 32%, and technology force by 20%. CEO Thiago Piau said, "We believe that creating a strong moat is very important and our moat is based on empowering small and medium businesses to win." This winning approach meant that margins were sorely pressured in 2021 as the company expanded, but it should be rewarded with more clients and higher revenue in 2022 and beyond.

StoneCo faced some challenges over the summer with regulatory changes in its credit business. That led to higher delinquencies and changes in its accounting practices as well as decreased performance in its credit products. The second-quarter earnings report reflected this in the only revenue decrease of the year and a decline in the take rate.

The third quarter demonstrated stronger growth, with a 57% year-over-year increase in revenue, a 54% increase in total payment volume (minus the coronavoucher program, similar to U.S. stimulus payments, on a year-over-year basis), and a 111% increase in total clients, ending with almost 1.4 million active payment clients.

Now what

Has StoneCo stock bottomed out? Shareholders must hope so. Management is confident that its investments will pay off and about dealing with the short-term credit scenario. It sees a huge opportunity to grow, with 8 million small businesses in Brazil and 20 million micro-clients and its expanding catalog of business solutions. It certainly looks like a risky play right now, but it could pay off big if investors buy shares at today's low price.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool owns and recommends Block, Inc. and Stoneco LTD. The Motley Fool has a disclosure policy.

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