What happened
Shares of Brazilian financial-technology (fintech) company PagSeguro Digital (PAGS 1.11%) jumped on Friday after the company reported financial results for the fourth quarter of 2022. Revenue was up sharply and profits improved, which is why the stock was up 6% as of 3:30 p.m. ET. But it had been up as much as 19% earlier in the day.
So what
For Q4, PagSeguro grew its revenue 22% year over year to about $760 million (the company reports in Brazilian reais). Management celebrated its ongoing growth, pointing out that it now has 28 million clients, up from 26 million in the previous quarter, which it says makes it the second-largest Brazilian digital bank.
Additionally, PagSeguro grew its earnings per share (EPS) by 36% year over year in Q4 -- outpacing revenue growth -- as management works through some operational challenges. Specifically, management slowed down some of its lending to riskier borrowers, which required higher provisions for losses. These loss provisions had impacted profits in recent quarters. But this area showed improvement to end the year.
Now what
PagSeguro stock is undeniably cheap, which partly explains why it jumped so sharply in early trading today. At the current exchange rate, the company earned EPS of about $0.88 in 2022, meaning it's trading right around 10 times trailing earnings as of this writing.
Judging by the stock performances of PagSeguro and its rivals, it seems the market has no appetite for Brazilian fintech stocks in general right now. However, if PagSeguro can continue growing profitably in 2023 and beyond like management expects, I believe it will eventually start winning investors over. It may just require more patience than usual.
