StoneCo is a compelling financial services company that operates primarily in Latin America. In this article, I’m going to evaluate the company’s key risks and then analyze its valuation to determine whether the stock is a buy—even after accounting for the major risks I’ll highlight.
I'll assess valuation using a couple of approaches, including my proprietary discounted cash flow (DCF) model, which will give us a clearer picture of what I believe the business is worth today. Based on that, I’ll share whether I think the stock is currently a buy, hold, or sell.
Q4 2024 Earnings Overview
Q4 2024 Results: StoneCo reported an adjusted net income of R$497.1 million, marking a 54.4% increase year-over-year. Adjusted basic EPS stood at R$1.61, up 57.2% from the previous year. Total revenue and income reached R$3.21 billion, reflecting an 8.5% growth year-over-year.
Earnings Surprise: The company delivered an earnings surprise of 21.88%, with adjusted earnings per share of $0.39, surpassing the consensus estimate of $0.32.
These results point to strong operational performance and disciplined cost control, contributing to significantly improved profitability.
Stock Performance
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Current Price: As of May 6, 2025, STNE is trading at $13.34.
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52-Week Range: The stock has fluctuated between $7.72 and $17.09 over the past year.
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Year-to-Date Performance: The stock has rebounded 37% since mid-January 2025, driven by strong unit economics and improving macro conditions in key regions.
Fundamental
As of December 31, 2024, StoneCo Ltd. (STNE) reported a positive earnings per share (EPS) of $0.39 for the fourth quarter, surpassing the consensus estimate of $0.32 by approximately 21.25%. This marked an improvement compared to the same quarter in the previous year, where the EPS was $0.36.
The company achieved total revenue and income of R$3.21 billion, reflecting an 8.5% growth year-over-year.
Despite recognizing a goodwill impairment charge of R$3.6 billion for its software cash-generating units, this non-cash charge did not result in a negative EPS for the quarter.
Overall, StoneCo’s Q4 2024 results highlight the company’s ability to maintain strong financial performance, even while navigating challenges in its operations.
Macroeconomic and Currency Risk in Brazil
StoneCo earns most of its revenue and incurs most of its costs in Brazilian reais, making it highly exposed to Brazil's economic conditions. Elevated inflation can reduce consumer purchasing power, directly impacting demand for StoneCo’s services and pushing up operating expenses. Interest rate volatility is another concern, as are broader economic slowdowns—which may be influenced globally by trade policies like those implemented during Donald Trump’s presidency. Even businesses not directly trading with the U.S. can be impacted if they operate in regions affected by these policies.
Regulatory and Compliance Uncertainty
As with all financial services firms, StoneCo faces heightened regulatory scrutiny and ongoing compliance costs. In Latin America, these challenges are intensified by a less stable regulatory environment. Laws can shift significantly depending on the political party in power, and compliance in such a dynamic environment requires a high degree of adaptability and resilience.
Operational Complexity
Running a financial services business brings unique operational risks. Unlike manufacturing companies, which benefit from economies of scale, financial services firms depend more heavily on human capital. Success relies on hiring and managing the right talent, setting appropriate risk limits, and maintaining internal controls—all of which can be difficult to scale and manage efficiently.
Valuation: My DCF Model and Fair Value Estimate
I ran a proprietary discounted cash flow analysis for StoneCo. My model, which I walk through in detail for channel members, estimated the intrinsic value of StoneCo at $20.62 per share. With the current market price at $14.14, that implies 25–33% upside based on today's fundamentals.
Over the past year, StoneCo’s stock has traded between $7.73 and $17.90, placing today’s price closer to the high end of that range. This is a volatile stock in a volatile region, making it suitable only for investors with a higher risk tolerance.
Who Should (and Shouldn't) Buy
If you’re a conservative investor looking for stable blue-chip companies, I’d suggest alternatives like Procter & Gamble, Costco, Coca-Cola, or PepsiCo. But if you’re seeking higher potential returns and are comfortable with higher risk, StoneCo is an interesting candidate to consider.
Final Verdict
In my six-step investment framework, valuation receives the highest weight. Even if a company excels in five categories, if the valuation doesn’t make sense, the investment case falls apart. Fortunately, StoneCo scores very well on valuation, and reasonably well across the rest of my framework.
My rating for StoneCo at current prices: BUY.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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