Why StoneCo Stock Just Jumped 13%

Shares of Cayman Islands-based fintech stock StoneCo (STNE 12.41%) enjoyed a 13.2% run-up through 11:30 a.m. ET Monday morning, as investors got their first chance to react to the company’s apparent after-hours earnings beat on Friday.

StoneCo closed out its third quarter of 2023 with 3.1 billion reals in revenue and 545 million reals in adjusted pre-tax earnings, “exceeding expectations,” as management declared.

So what are reals?

Reals are the Brazilian currency, in which StoneCo reports its results — seeing as it’s a Brazilian company, despite being headquartered in the Caymans. There are 4.92 Brazilian reals to the US dollar.

When I say that StoneCo did 3.1 billion reals in revenue, you can think of this as $609.9 million — a number that almost precisely matches analyst forecasts for $610.2 million in Q3 revenue. Even better, StoneCo’s adjusted pre-tax profit of 545 million reals works out to about $110.9 million total, or about $0.35 per share. This appears to be much better than the $0.22 profit that Wall Street analysts had forecast.

To put those numbers in even more context, StoneCo noted that its sales grew 25% year over year in local currency terms — and its pre-tax earnings grew 228%.

Should you buy StoneCo stock?

With Q3’s numbers in the bag, StoneCo now has a trailing net profit of $206 million and is on course to book its first full-year profit after two straight years of losses. StoneCo also boasts positive free cash flow of $351 million in cash profits booked over the last 12 months.

All of this, mind you, is on a fintech stock with only a $3.4 billion market capitalization, with $1.1 billion in net cash on its balance sheet, and therefore with an enterprise value of just $2.3 billion — and an enterprise-value-to-free-cash-flow valuation of just 6.6. For a company that just showed it can grow its revenue base at 25% annually, this seems like an incredibly cheap valuation for StoneCo.

I’d say investors buying the stock today are making the right call.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends StoneCo. The Motley Fool has a disclosure policy.

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