For folks who want to consider exotic investments, Cayman Islands-based financial technology (fintech) firm StoneCo (NASDAQ:STNE) might seem appealing. After all, STNE stock is cheap now, so shouldn’t we apply a “buy low, sell high” strategy?
Not so fast. For one thing, you can “buy low” and a stock can still go much lower. Also, the “sell high” part of the strategy won’t pan out if the company is having issues.
By the way, just because StoneCo is based on the Cayman Islands, this doesn’t mean that this is where the company’s business is focused. As we’ll see, StoneCo’s operations target a region where a fintech investment might not be advisable.
On top of all that, a deep dive into StoneCo’s financials will reveal some startling statistics. After conducting your due diligence, you’ll probably have second thoughts about this company, and just want to avoid it altogether.
STNE Stock at a Glance
Going back to the beginning, StoneCo established an initial public offering (IPO) price of $24 in October 2018. However, STNE stock actually opened for trading on the Nasdaq exchange at $32.
Eventually, the StoneCo share price topped out at $95.12. This price was achieved in February 2021, a time when the meme-stock trade was in full effect and some retail traders were in a buying frenzy.
That frenzy couldn’t last forever, however. As it turned out, STNE stock lost the majority of its value over the ensuing year, landing at $12 and change in mid-February 2022.
Furthermore, if you’re planning to look for a price-to-earnings ratio for StoneCo, don’t bother. On a trailing 12-month basis, StoneCo has a negative earnings profile, so the “earnings” part of the price-to-earnings formula is nonexistent.
Wrong Place, Wrong Time
So far, we’ve established that STNE stock is in a confirmed and persistent downtrend. We’ve also shown that StoneCo has an issue with earnings, but we’ll get back to the company’s financials in a moment.
But first, there’s an issue that must be addressed. As we touched upon earlier, StoneCo offers financial technology solutions and has operations in Brazil.
Just because a country sounds exotic and intriguing, doesn’t mean that it’s the ideal place to park your money in a fintech business right now.
First of all, if you think that inflation in the U.S. is problematic, it’s even worse in Brazil. Shockingly, Brazil has had a 10%-plus annualized inflation rate (as measured by the consumer price index) for five consecutive months.
Reportedly, Brazil’s high inflation rate has compelled the nation’s central bank to increase borrowing costs. That’s bad news for financial businesses in general.
Moreover, the outlook for Brazil’s economy isn’t optimistic. In a poll of economists, the market outlook for Brazil’s 2022 economic growth declined to less than 0.6%.
Fiscal Failure
Along with Brazil’s macro-level concerns, there are specific financial issues with StoneCo.
The company’s most recently released quarterly data covers the third quarter of 2021. StoneCo reported that its adjusted net cash position as of September 30, 2021, declined to 2.7 billion BRL. That’s a significant decrease compared to the 12.36 billion BRL recorded on December 31, 2020.
During that same time frame, StoneCo’s cash and cash equivalents plus short-term investments decreased from 10.58 billion BRL to 5.29 billion BRL.
Additionally, a glance at StoneCo’s Form 6-K reveals a huge crack in the company’s financial foundation.
In the nine months ended September 30, 2020, StoneCo showed a net profit of 531.35 million BRL. However, the company swung to a net loss of 575.9 million BRL in the nine months ended September 30, 2021.
The Takeaway
StoneCo’s dwindling capital position is a serious concern. The company’s dramatic shift from a net profit to a net loss is also worrisome.
At the same time, StoneCo is attempting to conduct a finance-focused business in a region that’s expected to exhibit slowing economic growth.
This all adds up to a poor outlook for STNE stock, so investors should seek international opportunities elsewhere.
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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