Why We're Avoiding StoneCo Stock

StoneCo stock $STNE has attracted interest from marquee investors like Warren Buffett and ARK Invest as a promising way to play the growth of financial services in #Brazil, particularly in B2C #payments. So why has STNE stock fallen 85% in the past year? Part of the blame can be tied to their poor-performing loan portfolio, a problem that's nearly behind them now. Soon they'll be offering loans again, but will the same problems persist? We find the BRIC countries – Brazil, India, China, and Russia – present far more risk than we’re willing to take. Technology is risky enough in developed markets, but when you throw in corrupt governments, cultural differences, entrenched religious beliefs, volatile currencies, and exceptionally crafty criminals, success becomes more luck than skill. StoneCo has hinged the entire success of their business on a single country/market and that’s a risk we’re not willing to take. The company's entire exposure is around Brazil, and we're not sure the pot of gold at the end of the rainbow is that big. Here's why we're avoiding this risky #fintech stock.

RESEARCH PIECES USED IN THIS VIDEO:
1. StoneCo Stock: A Ballsy Bet on Brazilian Businesses
2. Checking in With Payment Stocks – PayPal, Adyen, & Block

CHAPTERS
00:00 Intro
01:42 The Brazilian MSME opportunity
02:47 StoneCo's TON product
03:54 StoneCo stock's dramatic drop
04:56 The legacy loan problem
07:52 Business banking and insurance
09:46 How profitable can StoneCo become?
10:56 StoneCo's reasonable valuation
11:29 Conclusion

ABOUT US:
This video is brought to you by Nanalyze, a boutique media and research firm founded by finance professionals with decades of experience. We share insights about #DisruptiveTechnology #investments in a language that is future-proof and easy to understand.

#StoneCoStock #nanalyze

[yipingzhang]

Thanks man for this great video. About Buffett, if I remember correctly, his fund bought in on ~ 24 dollars per share, but they sold 25% of his holding at ~90 usd, so basically for the left 75% shares, the average cost is nearly 0.

[radigeorgiev]

I think StoneCo could be one of the biggest winners of the next bull market. The risk is there, true, but I think this could be a great turnaround. The business model is very simple to understand and it is very good explained in the annual report... They do not take risk on insurance, they just *broker* it.

[Lord_Falcon]

I have a small position around the $8.50 mark. Considering buying more. I'm British so for foreign holdings US is fine but I don't just want UK & US stocks. Could buy funds but then they take fees and 99% of the time don't beat the market. Don't trust Chinese stocks that you can buy from US exchanges but the US has enough influence in South America to create some stability making Brazil a decent option. US institutional investment gives normal people some protection because they lobby to protect their interests. StoneCo management specifically have done a good job. Sure they made a mistake with the lending but have recovered well from it and admitted their mistake quickly. A lot of management never apologise and constantly blame outside forces which shows they're easily shaken and not capable of pivoting quickly for the good of the company. Need to keep and eye on them and if they keep making sensible moves I'll average in more. Happy to do so for a few years.

[stephengalea]

I thoroughly loved the bear case for emerging markets. I never was a Stone shareholder but I'm watching your content whenever i can.

[rabywastaken]

Thanks for yet another incredible presentation, btw
I was on the fence about this company, it's been on my watchlist for weeks

[daniuskac]

Interesting video, Joe! I considered investing in this stock when I was aware that Warren Buffets owns it because he is good at picking great financial institutions. However, I am revising my strategy on what to invest, and I will stay for now with Paypal and Square.

[tutotrading]

Thanks for the video.
Sorry but I did not understand your intro about the HR department, hiring based on skills and not to follow ideological views, I agree with that but what is it STNE ?

[affel]

I can't recall if you did a piece on fellow LatAm play DLocal. If not I would suggest you do. It's not the same space as StoneCo exactly but more tech/ecommerce/law. I would wager that it probably checks all the boxes that StoneCo didn't for you. But would also be glad if you found some red flags of course.

[dougtrvl]

Hello 👋 Joe,
Great analysis & it reminds me of how risky & speculative my investment in Stoneco is !
I new that when I bought my first 1, 000 shares at 9 dollars, & my last 1, 000 shares today under 8 dollars. It’s only 1% of my total portfolio.
Do you have any thoughts on Didi ? The Chinese Uber ? It dropped so low with USA delisting & now on the OTC market .
I bought 10, 000 shares at 1.5 dollars, & the
January 2024 3 dollar calls .
I also a very small position in Grab, the Singapore Indonesia Thailand Vietnam Uber & doordash instacart .

[MichaelBeirneVettedCapital]

hi they seem to have righted the ship and crushed their numbers quite handily the past two quarters. i’m extra bullish on this- could you revisit? thanks!

[Britva]

Great video as always. I wish I could have watched it in 2021 when I bought some stocks following the "hey if Buffett and Wood are in, why shouldn't I?!" without knowing pretty much anything about the subject and BR "challenging" environment. I guess I learnt in the hard way. :)

[GMThePeople]

PAGS then? Hardly less opaque, but cheap, profitable & high-growth. Or if Brazilian fintechs suck too much, at least they have some tasty meat stocks. Like real, actual meat - mmn!

[afrocraft]

India, not Indonesia, is the "I" in BRICS.

[JD-wbpl]

Well you would have made over 100% return. Wonder what your thoughts are today with the company. Seems Pedro has the company growing nicely with growing profitability

[MichaelBeirneVettedCapital]

ping, looks like last chance to add stne around 12$ point may be here, if you're going to take a second look, it's been a year! :-0)

[deuceistheking]

I noticed in your about section you call yourself an investment professional. I was just wondering what qualifies you as an investment professional besides running this youtube channel? Thanks

[Timyeahhh]

Ally my stocks I like you have a response “avoiding” 😢

[rayjr]

DEI is about deliberately engaging with marginalized communities to seek out talents that have been traditionally and systemically overlooked in a historically racist society. To frame it as a quota system is a complete if not deliberate misrepresentation of its intended goals.

[Mikster_Mindo]

If a company is difficult to understand, opaque, in a competitive environment and in one country, I would not be discouraged; it can still be a gem.

Not saying I think it is a buy but my fear lies within the 'PIX'-system, which may topple over the business model. Just cannot get my finger behind the issue, how threatening it is for STNE.