What happened
Shares of DLocal (DLO 0.56%) were up 42% at 9:56 a.m. ET on Wednesday after the company delivered a better-than-expected second-quarter earnings report.
The payment processor reported higher revenue and earnings per share than analysts expected, sending this beaten-down growth stock soaring off recent lows.
So what
A high valuation weighed on the stock last year, as revenue growth decelerated from triple-digit annual rates to 72% in 2022. Lower growth expectations set the stage for a rebound, as DLocal's revenue increased 59% year over year in the second quarter, while over the previous quarter, revenue grew 17%.
It was the second consecutive quarter of accelerating year-over-year growth, which is getting Wall Street's attention. Total payment volume across the company's network grew 80% year over year, highlighted by strong growth in Brazil, Egypt, Morocco, and the Philippines.
Now what
As a payment processor serving emerging markets, DLocal still has a tremendous growth opportunity ahead, as noted by its consistent high growth over the last few years.
Moreover, DLocal is building a solid competitive advantage solving the complex needs in these markets. The company has built expertise over many years in adapting to regulatory changes that management believes separates itself from the competition.
This is an expensive stock, with a high price-to-sales ratio of about 15. Due to the macroeconomic uncertainty and the volatile economies in emerging markets, investors will need to see more momentum like we saw in the first half of the year to justify the stock's valuation.
