Is StoneCo (STNE) Resetting After A 78% Five Year Share Price Slide?

• Wondering if StoneCo at US$15.08 is offering value or simply treading water? This breakdown will help you size up the stock before you commit new capital.
• The share price shows mixed signals, with a 1.1% return over the last 7 days, 7.3% over 30 days, 2.7% year to date, 15.7% over 1 year, 28.7% over 3 years, but a 78.3% decline over 5 years.
• Recent coverage around StoneCo has focused on how the stock's long term pullback and more recent positive returns have shifted sentiment among investors and commentators. That contrast has kept attention on whether the current price more closely reflects past setbacks or the possibility of a reset.
• StoneCo currently has a valuation score of 5 out of 6. The next sections will walk through what that means across different valuation methods and outline a broader framework that can give you a clearer view of value by the end of the article.

StoneCo delivered 15.7% returns over the last year. See how this stacks up to the rest of the Diversified Financial industry.

Approach 1: StoneCo Excess Returns Analysis

The Excess Returns model asks a simple question for you as an investor: does StoneCo earn more on its equity than it costs the company to raise that equity, and for how long can that gap last?

For StoneCo, the model uses a Book Value of US$44.17 per share and a Stable EPS of US$12.89 per share, based on weighted future Return on Equity estimates from 9 analysts. The average Return on Equity is 25.89%, while the Cost of Equity is US$3.70 per share. That leaves an Excess Return of US$9.18 per share, which is then projected forward using a Stable Book Value of US$49.76 per share, sourced from weighted future Book Value estimates from 5 analysts.

By capitalizing these expected excess returns, the model arrives at an intrinsic value of roughly US$55.76 per share. Against the current share price of US$15.08, this implies the stock is about 73.0% undervalued on this measure.

Result: UNDERVALUED

Our Excess Returns analysis suggests StoneCo is undervalued by 73.0%. Track this in your watchlist or portfolio, or discover 61 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for StoneCo.

Approach 2: StoneCo Price vs Earnings

For a profitable company, the P/E ratio is a useful shorthand for how much investors are currently paying for each dollar of earnings. It ties directly to what you see on the income statement and is easy to compare across different stocks.

In practice, a higher P/E often reflects higher growth expectations or lower perceived risk, while a lower P/E can point to more muted expectations or higher risk. StoneCo currently trades on a P/E of 7.80x, compared with the Diversified Financial industry average of 17.43x and a peer group average of 24.94x.

Simply Wall St’s “Fair Ratio” for StoneCo is 13.73x. This is a proprietary P/E estimate that adjusts for factors such as earnings growth, profit margins, risk profile, industry, and market cap. This can make it more tailored than a simple comparison against broad industry or peer averages. By weighing those company specific inputs, the Fair Ratio aims to reflect what could be a more appropriate P/E for StoneCo rather than relying only on headline benchmarks.

Compared with the current 7.80x P/E, the Fair Ratio of 13.73x indicates that the shares are trading below that tailored reference point.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your StoneCo Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so this is where Narratives come in, giving you a simple story to attach to the numbers by linking your view on StoneCo’s future revenue, earnings and margins to a forecast and then to a Fair Value that you can compare with the current price.

On Simply Wall St’s Community page, Narratives are an easy tool that lets you choose or build the story you agree with, then see how that story translates into a Fair Value that automatically updates when new news, earnings or guidance are added to the platform.

For StoneCo, one investor might align with the bearish Narrative that points to a Fair Value of about US$13.61, focusing on slower R$14.6b revenue and R$2.1b earnings by 2029 with an 8.0x P/E. Another might prefer the bullish Narrative with a Fair Value near US$23.17 built on R$19.0b revenue, R$5.4b earnings and a 5.5x P/E. By comparing each Fair Value to the current US$15.08 share price you can decide whether the story you agree with makes StoneCo look expensive, cheap or about fairly priced for your own portfolio.

For StoneCo, here are previews of two leading StoneCo Narratives for easy comparison:

🐂 StoneCo Bull Case

Fair value in this bullish Narrative: US$23.17 per share.

Implied discount to this fair value vs the last close at US$15.08: about 35% undervalued.

Revenue growth assumption: 12.40% a year.

• Focus on micro, small and medium sized businesses in payments and digital banking, with analyst expectations that revenue and earnings can scale as more merchants adopt electronic payments in Brazil.
• Analysts in this camp are building in higher profit margins over time and see StoneCo's funding and deposit base as important to supporting those earnings.
• This view lines up with a fair value of about US$23.17, with the gap to the current price depending on whether you agree with the higher growth, margin and capital return assumptions.

🐻 StoneCo Bear Case

Fair value in this bearish Narrative: US$13.61 per share.

Implied premium to this fair value vs the last close at US$15.08: about 11% overvalued.

Revenue growth assumption: 2.93% a year.

• Bears focus on risks from central bank digital currencies, heavier regulation, and technology shifts that could reduce payment volumes and pressure StoneCo's margins.
• This view also factors in competition, credit risk to Brazilian small businesses, and the cost of keeping up with new financial technology.
• On these inputs, the fair value sits closer to US$13.61, so the current price looks above what the more cautious analysts are willing to pay for the slower growth and thinner margin profile they model.

If you would like to see how your own expectations compare with these two starting points, it can help to stress test your assumptions on earnings, margins and P/E multiples rather than relying on a single headline price target.

See what the community is saying about StoneCo

Do you think there's more to the story for StoneCo? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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