Shares of Brazilian digital payments operator PagSeguro Digital (PAGS 1.51%) climbed 26% in March according to data provided by S&P Global Market Intelligence. The company posted an excellent fourth-quarter earnings report, and the price has been slammed for so long and has gotten so low that investors are finally recognizing an opportunity.
PagSeguro is a financial technology (fintech) company based in Brazil that provides digital payments solutions to individual and enterprise customers. It also offers many complementary services such as point-of-sale devices and prepaid credit cards.
The company has been posting strong operating results, and that continued with a phenomenal fourth quarter. Revenue increased 55%, and total payment volume (TPV) grew 76%. PagBank active users increased by almost 1 million compared with the previous quarter, and the number grew by more than 5 million compared with the year before. Net income decreased 20% year over year due to a nearly 90% increase in expenses, but profitability remained healthy, at about $54 million.
These results were particularly impressive in light of the economic situation in Brazil, which has been in turmoil since the coronavirus pandemic began. Between inflation, the central bank raising interest rates, high debt levels, and a high COVID-19 positivity rate, Brazil has not been an easy country to do business in over the past few years. Add to that some credit card policy changes the central bank made back in October that investors viewed as adverse to PagSeguro's operations.
But Brazil has a huge population of more than 212 million people, historically underbanked and moving over to digital payments at rising rates. Its banking industry is also highly concentrated, with six financial institutions accounting for 90% of the banking profits. That gives PagSeguro a huge market in which to grow its business. It's also continuing to launch products, such as its complete mobile online banking solution.
PagSeguro stock is down 56% over the past year, and it's trading for a very reasonable 28 times trailing-12-month earnings considering its high growth and robust opportunities. The Wall Street average consensus is a 50% price increase. At this valuation, and with its many opportunities, PagSeguro looks like a very compelling buy.