Shares of Cayman Islands-based fintech stock StoneCo (NASDAQ: STNE) 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.
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%.
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.
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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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