StoneCo Ltd. Stock is in Turnaround

Brazilian point-of-sale (POS) financial technology provider StoneCo NASDAQ: STNE stock has had a spectacular collapse from its high of $93.42 on Feb. 17, 2021, to a low of $8.05 on March 15, 2022. The multichannel fintech software and solutions provider was hit on multiple fronts including rising interest rates and weakening Brazilian economy. However, the Company took actions including restructuring into two segments, financial services, and software, in Q4 2021 to lay the foundation for a turnaround in the new year. The Company also adjusted its pricing policies (late) in November 2021, which should result in improved profitability in 2022. StoneCo appears to have the right foundation for a turnaround and prudent investors can watch for opportunistic pullback levels to get in ahead of the crowd.

Q4 Fiscal 2021 Earnings Release

On March 17, 2022, StoneCo released its fiscal fourth-quarter 2021 results for the quarter ending December 2021. The Company reported a profit of BRL 0.13 per share missing consensus analyst estimates for BRL 0.17 by BRL 0.04. Revenues rose 87% year-over-year (YoY) to BRL 1.9 billion beating analyst estimates for BRL 1.71 billion. TPV ex-Coronavoucher was R$88.7 billion, up 54.5% YoY and hitting R$272.0 billion for the full-year 2021. Total payments active customer base grew to 1.8 million, beating analyst expectations for 1.4 million to 1.5 million. StoneCo expects margins to start improving in fiscal Q1 2022 as the Company adjusted its pricing policies in November 2021 which should show improved profitability in 2022.

Conference Call Takeaways

StoneCo CEO Thiago Piau admitted that 2021 was “unsatisfying” due to the many mistakes made by the Company. The Brazilian fintech expanded its credit offering quickly but failed to manage it efficiently as problems were amplified by the issues with the National Registry System. This caused the Company to pull its credit operation in mid-2021. The Company also failed to reprice its solutions when interest rates started to rise in Brazil. While the Company didn’t want its customers to get hurt, they now realize that the customers could absorb the higher fees. The Company did implement new pricing in November 2021. StoneCo invested in building its Stone products banking ecosystem along with improving its technology and customer service. The Company should have spread out the investments while boosting prices to avoid the near-term bottom line pressure. He admitted, “Ultimately, I think we lost some of our focus and execution precision as we manage all of these issues, while at the same time, also integrating Linx, an entirely new part of our business. As a result, our performance suffered, and our profitability declined. So 2021 was not our best year.” However, there were also highlights including 87% top line growth for 2021 from a record number of new clients, growing market share, and expansion of its banking ecosystem. In 2022, StoneCo will report for two operating segments after the reorganization. The financial services segment is comprised of the Stone payments and digital banking and credit business. The software segment includes Linx and all other portfolio companies. He concluded, “Now let me shift to our outlook for this year, which is quite positive, with strong growth and improving margins. I think we are well positioned for 2022. The investments we made in our projects and operations will continue to help us drive growth on top of our strong core business, which keeps taking market share.”

STNE Opportunistic Pullback Levels

We use the rifle charts on the weekly and daily time frames to provide a short-term perspective for STNE shares. The weekly rifle chart made an initial bottom at the $8.05 Fibonacci (fib) level before commencing its recovery. The weekly rifle chart downtrend is stalled on the flat 5-period moving average (MA) at $11.19 followed by the 15-period MA at $13.64 with weekly upper Bollinger Bands (BBs) at $26.87. The weekly stochastic bounced towards the 20-band. The weekly market structure low (MSL) triggers on a breakout through $13.90. The daily rifle chart uptrend is stalling as the 5-period MA flattens at $13.69 with 50-period MA at $12.51 and 15-period MA is rising at $11.03. The weekly stochastic peaked at the 90-band and will either cross down through 80-band or attempt a mini pup. The daily upper BBs sit at $16.16 and daily lower BBs sit at $5.72. Risk tolerant investors can watch for opportunistic pullback levels at the $10.78 fib, $9.51, $8.05 fib, $7.49, $5.60, and $4.58 level. Upside trajectories range from the $17.20 fib up towards the $22.84 fib level.