Warren Buffett's stock picks often touch off lots of investor conversation. But not every stock in the Berkshire Hathaway portfolio captures investor interest. StoneCo (STNE 5.01%) is a Brazilian fintech company that doesn't appear to fit the usual Buffett-style approach to investing. It's a high-growth stock that hasn't looked like a great value -- until recently. Now that its price has tanked, down more than 70% since debuting on the market in 2019, it's trading at its cheapest valuation ever. Does that means investors should take a fresh look?

Powering e-commerce in Brazil

StoneCo markets e-commerce solutions for small and medium-sized businesses in Brazil. It does this through two operating segments: Financial services, which covers services such as payments and banking, and software, which offers full e-commerce solutions similar to Shopify. 

Brazil is one of the largest e-commerce markets in the world, with a population of more than 200 million people. In 2021, e-commerce in Brazil increased 27%, and it's forecast to grow at a compound annual rate of 14.6% for the next few years. That puts StoneCo in an excellent position as it makes itself the top e-commerce solutions provider in the region.

Growth has been robust. In the 2022 third quarter, revenue increased 71% year over year, after rising 275% in the second quarter. StoneCo added nearly 250,000 clients in Q3, and it grew its take rate, or fees on transactions, from 1.66% in Q3 2021 and 2.09% in the 2022 second quarter to 2.21%.

Changing monetary policy, changing management

This is somewhat of a recovery from slower growth during the pandemic's height, a time when StoneCo struggled with closed small businesses and monetary policy changes in Brazil. That strongly affected profitability, and StoneCo posted net losses for several quarters after being profitable for some time. It's not surprising that investors lost confidence over the past few years as management was slow to anticipate and deal effectively with these trends. Management itself has been turning over, which only leads to more investor pessimism. 

But things are turning around. The company made price adjustments to account for macroeconomic changes, and some of the general volatility is settling down. Adjusted net income increased 90% over last year in Q3 2022 to R$163 million ($32 million), and it posted net income in the quarter of R$197 million after a loss in the year-earlier period.

Working out its model

Something I really like about StoneCo is how well it's adapting its model to become more efficient and generate higher growth. For example, it operates two separate segments and is optimizing its marketing strategy to reach clients for each segment, spending more money on efforts to recruit larger business and less money to capture market share in smaller businesses. This is allowing it to add more total clients at an overall lower cost.

It's also developing a better credit scoring model to assess a client's ability to pay back loans and manage its cash flows. The credit business was ill-equipped to cope with evolving government fiscal policies, and it's testing new models to be more prepared in the future. StoneCo plans to launch more credit products when it has a better handle on how to manage credit risk. To some degree, buying StoneCo stock now is based on the premise that it will refine its business model while it's still in the process of figuring it out. 

Why is this a Buffett stock?

Most of the Berkshire Hathaway portfolio centers around slow-growing, stable stocks. But when Warren Buffett talks about what he looks for in a stock, that's not necessarily what he says. He doesn't look at the stock, per se, but rather the business -- he looks for well-run businesses with strong management and "durable economic advantages," often called moats.

StoneCo is highly focused on its moat, making investments to become the provider of choice for Brazilian small businesses. 

Is StoneCo stock cheap?

StoneCo stock trades at a price-to-sales ratio of about 1.4, which appears almost ridiculously low for a high-growth stock. It's the cheapest the stock has ever been, at a point when StoneCo may finally be demonstrating the stability it needs for the average investor to consider buying the shares. 

It looks like a lot of the risk has already been mitigated by improving profitability and fantastic growth, as well as customer loyalty. The rest of the risk is factored into the low price. Highly risk-averse investors might still want to steer clear for now, but at this price, growth investors may want to consider adding shares to their portfolios.