The last few years have been a roller coaster for the market. Stocks sold off hard in March 2020, then followed that up with a huge bull run, as growth stocks led the way. However, the trend has reversed in the last year, with growth stocks taking the brunt of the selling.
One growth stock that has had its up and downs is StoneCo (STNE -0.29%), the Brazilian fintech backed by Warren Buffett. After peaking at $95 per share last February, the fintech has shed 87% from its stock price, and now trades for just under $13.
With the company near its lowest price since going public, is now the time to buy?
StoneCo expanded rapidly last year
StoneCo is a payment processor providing fintech solutions to Brazilian merchants so they can sell their products anywhere: in-store, online, or through cellphones.
The company is rapidly growing, with a total payments volume last year of 275 billion Brazilian reals ($49.3 billion, using the exchange rate on Dec. 31, 2021), representing an increase of 31% from the previous year. This led to stellar growth on the top line, with revenue increasing 45% to 4.8 billion reals.
Its growth came at a cost
StoneCo took an aggressive approach chasing a huge opportunity in the Brazilian market. While top-line growth was stellar and the business keeps expanding its customer base and processed volume, Chief Executive Officer Thiago Piau said, "2021 was an unsatisfying year for Stone." Piau was disappointed because he thought the company tried to do too much last year, failing to execute as well as he would've liked.
StoneCo's growth came with higher expenses for the company, which posted a net loss of 1.4 billion Brazilian reals. This came after the company's impressive net profit of 837 million Brazilian reals in 2020.
The company cited an aggressive approach and a challenging macroeconomic environment as the causes of the disappointing year. During 2021, there were problems with the national registry system in Brazil, which caused it to pause its credit operations at midyear. Brazil has also implemented regulations for the lending and credit industries that have hurt StoneCo's lending to small and medium-size businesses.
What's next for StoneCo
Management is optimistic about 2022. It expects the number of merchants to continue growing rapidly. It will expand its banking solutions, and plans to relaunch its credit product during the year. It is also working to integrate Linx, a provider of retail software solutions with 70,000 clients that Stone Co agreed to buy in 2020, which should present another growth opportunity.
Another step it's taking is increasing prices. The company began adjusting its pricing policies in November 2021. Its take rate, a measure of StoneCo's cut of total payment volume, increased from 1.7% to 2% in January 2022.
StoneCo faces uncertainty in a tough Brazilian economy. However, it's an intriguing stock to buy in a vast emerging market. While the company will continue to experience growing pains, it could be an excellent growth stock for aggressive investors to buy at today's discounted price.