Stoneco Stock: Buy or Sell? | STNE Stock Analysis

SUMMARY

Parkev Tatevosian, CFA, analyzes StoneCo's recent financial struggles, highlighting the impact of rising interest rates and macroeconomic headwinds on the company's performance. The discussion centers on StoneCo's repositioning efforts, deteriorating profitability, and historically low valuation, with a cautious buy rating reiterated due to uncertainties in the Brazilian economy.

MAIN POINTS

• StoneCo's share price has dropped over 37% year-to-date in 2026 due to higher interest rates and concerns over its credit portfolio. [0:00]
• The company is increasing its use of government-backed credit, which allows for risk-sharing and more lending capacity. [1:01]
• StoneCo's revenue has declined to 573 million over the trailing 12 months, and operating profit margins have collapsed to negative 130%. [2:00]
• Despite the negative trends, StoneCo is trading at a historically low forward price-to-earnings ratio of 3.95, similar to a previous rebound point. [3:00]
• The analyst reiterates a low-conviction buy rating, citing limited understanding of the Brazilian economy and increased bearishness since March 26th. [4:01]
• StoneCo's future success depends on macroeconomic trends in Brazil, particularly default rates and the cost of capital. [5:01]

DETAILED ANALYSIS

StoneCo, a Brazilian financial services provider and lender to small businesses, has experienced significant challenges in 2026, with its share price declining by over 37% year-to-date. The primary factor behind this downturn is the rise in interest rates, which has negatively impacted the value of StoneCo's credit portfolio and heightened concerns about increasing default rates among borrowers. In response, the company has sought to reposition itself as a comprehensive banking and credit provider for entrepreneurs, moving beyond its established reputation as a payments company.

A notable shift in its lending strategy involves a greater reliance on government-backed credit, now comprising approximately 300 million Brazilian reals of its loan portfolio. This approach allows StoneCo to share risk with the government, enabling the company to extend more loans while mitigating potential losses from defaults.

Despite these strategic efforts, StoneCo's financial performance has deteriorated. Revenue, which had previously grown from 250 million to about 1 billion over a seven-year period, has now fallen to 573 million over the trailing twelve months. Profitability has also suffered, with operating profit margins collapsing to negative 130%.

Although there was a brief period of turnaround between 2022 and 2024, these gains have since reversed. One positive indicator is the improvement in returns on invested capital, which reached 13% in the most recent period. The stock's valuation reflects these challenges, trading at a forward price-to-earnings ratio of just 3.95, the lowest in at least a year and reminiscent of a previous period in 2025 when the stock rebounded sharply after reaching similar lows.

The analysis concludes with a reiteration of a buy rating, albeit with very low conviction, due to the analyst's limited familiarity with the Brazilian economy and increased bearishness since the last update in March 2026. The outlook for StoneCo is closely tied to broader macroeconomic conditions in Brazil, particularly the trajectory of default rates and the cost of capital. If economic conditions improve and default rates decline, StoneCo could benefit; however, continued headwinds may further strain its financial position.

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