Stock of the Month: StoneCo Ltd. (STNE)

Written by Donnie Nguyen

May 26, 2019

This month’s stock pick is a Brazilian fintech payments company similar to Jack Dorsey’s Square (SQ). The company is called StoneCo (STNE). I first heard of this company last year when Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B) started buying shares. I later came to find that he wasn’t the only big name investor buying shares in the stock. Jack Ma’s Ant Financial, an affiliate of Alibaba (BABA), has a stake. So does Madrone Capital Partners, which has links with Walmart (WMT).

Reference: Bloomberg.com

One of my favorite stock investing strategies is CANSLIM, developed by the author of How to Make Money in Stocks, William O’Neil. The “I” in CANSLIM stands for Institutional sponsorship. When big successful institutional investors like Berkshire Hathaway buy stakes in a company, it’s always a good idea to take note of it. You never want to just blindly buy a stock because some other guru is buying it. But it can be a good starting place to find stocks and perform additional research on them.

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Business Model

“Stone is a leading provider of financial technology solutions that empower merchants and integrated partners to conduct electronic commerce seamlessly across in-store, online, and mobile channels. Stone has developed a deep client-centric culture that seeks to delight our clients rather than to simply provide them with a solution or service. Stone serves clients of all sizes and types that transact online, offline or have an omni-channel sales approach. Stone also serves many integrated partners, which use or embed Stone’s solutions into their own offerings to enable their customers to conduct commerce more conveniently.”

Source: https://investors.stone.co/company-info

Stats (as of 5/24/2019)

  • Market Cap: 7.2B
  • Closing Price: 26.06
  • Total Revenue and Income growth (yoy): 86%
  • Adjusted Net Income growth (yoy): 603%
  • Net Income growth (yoy): 617%
  • Total Payment Volume (TPV) growth (yoy): 60.1%
  • Total Active Clients growth (yoy): 92.7%
  • Net Margin: 33%

CHART ACTION

After peaking at $45.62 in April, StoneCo’s stock price has come down significantly. It is sitting right around its Fibonacci 61.8% retracement. It’s also sitting below its opening day’s price from last year’s IPO. Based on the chart, I think this is a good price to start a position.

risks

The primary risks I’m concerned with are slowing growth, increased competition, and a decrease in stakes from the big investors I mentioned above. To reiterate, it’s not smart to blindly follow the action of gurus. But it’s a good idea to take note and try to figure out why they’re taking their actions.

Should I Buy?

StoneCo could be a great addition to a portfolio that needs exposure to:

  • Non-U.S. stocks
  • High-growth stocks
  • Payments industry stocks

Be sure to do your own research and determine for yourself if StoneCo is a good stock for your portfolio.

How Much Should I Buy?

Here are some portfolio guidelines we Wolves try to live by:

  • Thou shalt not hold more than 35% in any one particular sector
  • Thou shalt not invest more than 10% of principal into 1 individual stock
  • Thou shalt make small purchases. The general rule of thumb is to spend no more than 2% of your portfolio on a single purchase and build up your position over time.

The Bottom Line

StoneCo is a high-growth fintech stock headquartered in Brazil. Big investors like Berkshire Hathaway own a stake in the company. Their business model is similar to Square in the payments industry.

DISCLOSURE

I/we own shares of stock in STNE and SQ

Except for Wolves of Investing, I/we are not receiving any compensation from and do not have any business dealings with any companies discussed in this article.

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Donnie Nguyen

Donnie Nguyen

Donnie Nguyen is the founder and CEO of Wolves of Investing. He started investing in the stock market in the early 2000s. He follows the teachings of Peter Lynch, Warren Buffett, and other investing legends. When he's not investing or blogging, he loves spending time with his family traveling and experiencing the world.

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