Buoyed by bullish momentum for the broader market Wednesday, StoneCo (STNE -0.70%) stock is making substantial gains in today's trading. The Brazilian fintech company's share price was up roughly 13.6% as of 3:20 p.m. ET today, while the Nasdaq Composite index was up roughly 2.8%.
Comments from Russian and Ukrainian officials today suggesting progress on negotiating an end to their conflict are spurring bullish momentum, and the Federal Reserve's decision to raise interest rates by a quarter of a point (rather than the half-point raise some investors had feared) also prompted buying action for stocks. While market momentum can be expected to continue playing a significant role in StoneCo's near-term stock performance, investors thinking about buying the stock should focus on other factors.
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Should investors pounce on this beaten-down fintech stock?
StoneCo stock has gotten crushed since the beginning of 2021 due to challenging macroeconomic conditions and regulatory shifts that devastated its business lending segment. The company's share price is down roughly 90% from the lifetime high of roughly $94 per share that it hit in February of last year. The fintech player now has a market capitalization of roughly $2.85 billion and is valued at approximately 23 times this year's expected earnings and 1.8 times expected sales.
Brazil has seen relatively high levels of inflation even compared to many other parts of the world that are currently dealing with inflationary pressures, and regulatory changes implemented by the country's government have resulted in major headaches for StoneCo and its shareholders. Essentially, the company wound up taking losses on a significant amount of loans that it made, and the unfavorable outlook in the space led it to stop extending credit to small and medium-size businesses.
The last year has shown that StoneCo's business is heavily susceptible to macroeconomic and regulatory changes, and that means the company's stock isn't a low-risk investment despite trading at what otherwise might be very attractive multiples. On the other hand, the company's payment-processing business has continued to increase its total payment volume and customer base at encouraging clips, and I think the stock offers big upside for risk-tolerant investors at current prices.
After delaying its fourth-quarter earnings report from its previously planned March 10 release, StoneCo is scheduled to release its results after the market closes March 17. The Q4 release delay casts some extra uncertainty around the stock ahead of the report, but I continue to like StoneCo at its current valuation.
