StoneCo Is a Flop, So It’s Best to Just Let It Drop

Stocks to sell

Sometimes, investors want to diversify their portfolios geographically. Consequently, they might be curious about StoneCo (NASDAQ:STNE), a financial technology (fintech) firm that’s based in Brazil. It’s fine to research STNE stock, but this doesn’t mean that you should actually own it.

a credit card reader with a credit card in it

Source: Shutterstock

For one thing, the latest news reports regarding StoneCo are filled with class-action lawsuits against the company. Feel free to look here, here and here for just a handful of examples.

This is what can happen when a stock tanks and loyal investors are left holding the bag. As we’ll see, STNE stock rallied too far and too fast before coughing up all of its gains and then some.

We’re not in a position to discuss the lawsuits, but we can examine StoneCo’s financials and fundamentals. Based on the data, you’ll be in a better position to make a decision as an informed investor — and you’ll probably choose to keep your distance from StoneCo.

STNE Stock at a Glance

Like some other fintech stocks, STNE stock flew high after the market bottomed out in March of 2020.

Specifically, the StoneCo share price launched from $18 to a peak of $95.12, achieved in February of 2021. As it turned out, that would have been a great time to thank your lucky stars for the quick gains, and just “take the money and run,” as they say.

That’s because, by the end of the year, all of those gains would disappear and turn into a loss.

It just goes to show that greed — or at least, not knowing when to take profits — can be detrimental to your fiscal health.

After topping out in February, STNE stock plunged during the ensuing months. By the end of November, the share price was below $16. That’s significantly below StoneCo’s initial public offering (IPO) price of $24 per share.

It can be a bad omen when a stock falls far below its IPO price. Therefore, it’s best to proceed with caution — or better yet, just watch StoneCo from the sidelines.

It’s Still a Sell

In mid-October, we placed STNE stock on our list of seven growth stocks to sell.

Don’t get the wrong impression — we like growth stocks, in general. However, some are better than others — and some growth stocks get ahead of themselves.

Just to give you a little bit of background on the company, StoneCo mainly provides payment processing solution to digital merchants in Brazil and the surrounding areas.

To be frank, StoneCo doesn’t offer much that’s unique. There are plenty of fintech companies out there nowadays. Perhaps StoneCo may sound intriguing because it’s based in Brazil, and you might want to diversify your investments.

That’s understandable, but you have to pick the right business to bet on, and time your investment carefully.

As we mentioned in October — and this still holds true in December — Brazil is still reeling from the Covid-19 pandemic’s impact, and isn’t necessarily the most stable country economically.

Believe it or not, Brazil’s annualized inflation rate has gone up every month, for the past 12 months. The most recent reading pegs it as an eye-watering 10.67%.

Check the Bottom Line

Turning now to company-specific issues, it definitely looks like StoneCo isn’t firing on all cylinders.

InvestorPlace contributor Eddie Pan had the scoop on StoneCo’s third-quarter 2021 financial results.

Suffice it to say, there were some real stinkers among the fiscal data points.

First of all, StoneCo’s quarterly take rate (the fee charged on a transaction performed by a third-party seller/service provider) decreased to 1.66%, compared with 2.36% from the year-ago period.

Granted, there was an increase in the company’s revenues.

Yet, the bottom line is typically more important than the top line. And, StoneCo’s adjusted net income (excluding non-cash items) totaled 132.7 million BRL (Brazilian reals), down 54% year-over-year.

It’s also been reported that StoneCo’s quarterly net loss was equivalent to $230 million.

That’s on total revenues equivalent to around $270 million — clearly, these aren’t numbers that cautious investors would want to see.

The Takeaway for STNE Stock

There are a number of lessons to be learned here.

First, not all growth stocks are worth owning. Also, it’s not a bad idea to start taking profits after a stock has made a parabolic move.

Moreover, investors should carefully check the company-specific data, as well as the regional economic conditions, before making an international investment.

Based on those considerations, along with the negative price action of STNE stock, I simply cannot make a recommendation to own shares of StoneCo now. As such, I give it an “F” in my Portfolio Grader.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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