StoneCo Stock: Fast-Growing Brazilian Fintech Stumbles, But Looks Oversold

Summary

• StoneCo has been growing fast by helping to revolutionize financial services for SMBs in Brazil.
• But their new credit product has been a belly flop. StoneCo over-relied on Brazil's faulty new registry system for loan collateral, and had weak credit scoring and risk management.
• The credit losses are manageable, and StoneCo's course-corrective measures look credible. The recent stumble should not overshadow StoneCo's overall track record.
• Country risk is another factor, with Brazil being susceptible to political turmoil and macroeconomic volatility.
• For those unafraid of catching a falling knife, a sub-$32 entry point looks like it could work out for a 2-3+ year horizon.

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Investment Thesis

StoneCo Ltd. (NASDAQ:STNE) is a fast-growing Brazilian fintech that got some additional attention as a Warren Buffett/Todd Combs investment -- though it currently accounts for only ~0.24% of Berkshire Hathaway's portfolio. It provides financial technology

Analyst’s Disclosure: I/we have a beneficial long position in the shares of STNE,MELI either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I'm not a financial adviser/advisor, and this article is only intended to express my own perspective. I could have overlooked key facts and/or risks, and my views could change at any time, not least because of new information that might become available. The suitability of an investment depends on your own personal circumstances and risk tolerance. You are responsible for your own due diligence and investment decisions.