Core Viewpoint - StoneCo Ltd. (STNE) stock has gained approximately 10% since last July, aligning with the performance of the S&P 500, but it has not yet reached the anticipated target of $30 [1]. Company Summary - StoneCo Ltd. is currently experiencing a stock price increase, but it remains below the target price set previously [1]. - The company is under analysis by an experienced equity analyst with over 10 years in the investment industry, focusing on small-cap stocks often overlooked by Wall Street [1]. Analyst Background - The analyst has qualifications from the Chartered Institute for Securities and Investment (CISI) and is a CFA Level III candidate, indicating a strong background in investment analysis [1]. - The analyst has contributed to various investment platforms, showcasing a significant following and expertise in equity research [1].

Core Insights - StoneCo Ltd. experienced significant deposit growth in the first nine months of 2025, driven by increased usage of the Pix payment system, strategic bundling, and a cash sweep strategy [2][3] - The company's total client deposits reached R$9 billion, marking a 32% year-over-year increase, with deposits representing 7.1% of micro, small, and medium-sized businesses' total payment volume [2][7] - StoneCo's cash sweep strategy has successfully converted 84% of retail deposits into time deposits, which is expected to yield an annual net benefit of 75-125 basis points per R$1 billion converted [2][3] Deposit Growth and Strategy - Pix transaction volume surged by 64% year over year, significantly outpacing card transaction growth, which has positively impacted client deposit flows and overall financial service engagement [2][7] - The cash sweep strategy initiated in early 2025 is aimed at reducing funding expenses and supporting credit portfolio growth, thereby improving margins and capital structure [2][3] Competitive Landscape - Nu Holdings Ltd. reported a 34% year-over-year increase in deposits, reaching $38.8 billion, showcasing its ability to scale deposit volumes effectively across Latin America [4] - MercadoLibre, Inc. is leveraging Pix to enhance deposit growth by offering attractive remuneration on balances, resulting in a 20% year-over-year increase in monthly active fintech users to 72 million [5] Stock Performance and Valuation - StoneCo's stock has increased by 76% over the past year, significantly outperforming the industry average growth of 3.9% [6] - The company's valuation appears attractive, with a forward 12-month price-to-earnings (P/E) ratio of 7.2X, compared to the industry average of 32.91X [8] Earnings Estimates - The Zacks Consensus Estimate for StoneCo's earnings for 2025 and 2026 has remained unchanged over the past 30 days, indicating stability in earnings expectations [9]

Core Insights - StoneCo Ltd. (STNE) shares have increased by 64.3% over the past year, significantly outperforming the S&P 500's 16.3% gain and the Internet-Software industry's 4.7% rise [1][8] - The surge is attributed to strong performance in its financial services sector and strategic decisions, including the divestment of non-core software operations, allowing the company to target over 90% of its total addressable market, estimated at BRL 100 billion [2][8] Financial Performance - StoneCo's adjusted net income rose nearly 22% year over year for the first nine months of 2025, with a return on equity (ROE) of 24%, and the financial services division achieving an ROE of 33% [6][8] - The company's MSMB payments segment saw a 17.6% increase in active clients to 4.7 million, with total payment volume growing 13.2% [10] - Active banking clients increased by 21.8% to 3.5 million, and client deposits surged by 32%, with 84% being time-based deposits [11] Strategic Moves - The divestment of the Linx business reflects a strategic focus on core fintech operations, unlocking capital for high-return initiatives or shareholder returns [7] - StoneCo has executed BRL 2.8 billion in share repurchases over the past year, indicating strong management confidence [9] Market Position and Valuation - Despite the significant price increase, StoneCo trades at a forward P/E of 7.46X, well below its three-year high of 31.33X and the industry average of 34.14X [17][21] - The Zacks Consensus Estimate for earnings per share for 2025 and 2026 has been revised upward, reflecting positive sentiment [14] Growth Potential - The credit portfolio expanded by 148.9% year over year to BRL 2.3 billion, supported by a 139.7% increase in merchant working capital loans [12] - The company's balance sheet remains strong, ending Q3 2025 with BRL 3.5 billion in net cash, suggesting potential for further profitability without heavy reinvestment [13]

Core Insights - Investors primarily utilize price-to-earnings (P/E) and price-to-sales (P/S) ratios for stock evaluation, while the price-to-book (P/B) ratio serves as an additional metric for identifying undervalued stocks with growth potential [1][5][10] Group 1: P/B Ratio and Its Importance - The P/B ratio is defined as the ratio of stock price to book value, calculated as market capitalization divided by book value of equity [2] - A P/B ratio of less than one indicates that a stock is trading below its book value, suggesting it may be undervalued and a good buy [5] - Conversely, a P/B ratio greater than one suggests the stock may be overvalued [5][6] Group 2: Book Value Definition - Book value represents the total value remaining for shareholders if a company were to liquidate its assets after settling all liabilities [3] - It is calculated by subtracting total liabilities from total assets, equating to common stockholders' equity on the balance sheet [4] Group 3: Limitations of P/B Ratio - The P/B ratio is particularly useful for industries with tangible assets, such as finance and manufacturing, but may be misleading for companies with high R&D expenses or significant debt [8] - A low P/B ratio could indicate weak asset returns or overstated assets, while a high P/B may suggest a company is a takeover target [7] Group 4: Stocks with Low P/B Ratios - StoneCo (STNE) has a low P/B ratio with a projected 3-5 year EPS growth rate of 30.3% and a Zacks Rank of 2 [9][15] - Great Lakes Dredge & Dock (GLDD) also features a low P/B ratio with a projected EPS growth rate of 12.0% and a Zacks Rank of 1 [9][16] - Keros Therapeutics (KROS) is highlighted with a projected EPS growth rate of 23.6% and a Zacks Rank of 1 [9][20] Group 5: Screening Parameters for Investment - Screening for stocks involves comparing P/B, P/S, and P/E ratios against industry medians to identify attractive investment opportunities [11][12][13] - A PEG ratio of less than 1 indicates undervaluation relative to future growth prospects [13] - Stocks should have a minimum trading price of $5 and a substantial average trading volume for liquidity [14]

Market Overview - Major U.S. indices rose before Thanksgiving, with the Dow Jones Industrial Average gaining 314.67 points to close at 47,427.12, the S&P 500 increasing by 46.73 points to settle at 6,812.61, and the Nasdaq Composite outperforming with a gain of 0.82% to finish at 23,214.69 [1] Federal Reserve Policy Impact - Market momentum was driven by shifting expectations regarding Federal Reserve policy, with growing confidence that interest rate cuts may occur as soon as next month, fostering optimism [2] - Easing concerns about an overvalued artificial intelligence sector contributed to improved market sentiment [2] Value Stocks Opportunity - Value stocks are seen as appealing due to the potential benefits of lower borrowing costs for companies with stable earnings and discounted valuations [2] - The Price to Cash Flow (P/CF) ratio is highlighted as an effective valuation metric for evaluating value stocks, indicating better value when lower [3][4] Financial Health Indicators - P/CF stands out because it reflects a company's financial health by adding back non-cash charges to net income, making it a more reliable measure than earnings, which can be subject to manipulation [4][5] - Positive cash flow indicates increased liquid assets, allowing companies to manage debt, expenses, and reinvestment, while negative cash flow suggests declining liquidity [6] Value Investing Strategy - A comprehensive investment strategy should include multiple metrics such as price-to-book, price-to-earnings, and price-to-sales ratios, along with a favorable Zacks Rank and Value Score to avoid value traps [7] - Parameters for selecting true-value stocks include a P/CF ratio less than or equal to the industry median, a minimum stock price of $5, and an average 20-day trading volume greater than 100,000 [8] Highlighted Value Stocks - Four value stocks with low P/CF ratios were identified: Great Lakes Dredge & Dock Corporation (GLDD), StoneCo Ltd. (STNE), PG&E Corporation (PCG), and EnerSys (ENS), all showing year-over-year sales and EPS growth projections [9] - Each of these stocks holds a Value Score of A or B and ranks in the top two Zacks Ranks, indicating strong potential [9] Company-Specific Insights - Great Lakes Dredge & Dock (GLDD) has a trailing four-quarter earnings surprise of 65.5% and is projected to see sales and EPS growth of 11.6% and 31%, respectively [12][13] - StoneCo (STNE) has a trailing earnings surprise of 9.1% and is expected to grow sales and EPS by 12.7% and 27.4%, respectively, with shares having rallied 68% in the past year [13][14] - PG&E Corporation (PCG) has a trailing earnings surprise of 0.5% and is projected for sales and EPS growth of 6.7% and 10.3%, respectively, although shares have declined 26% in the past year [14][15] - EnerSys (ENS) has a trailing earnings surprise of 4.9% and is expected to see sales and EPS growth of 4% and 1.3%, respectively, with shares surging 47.8% in the past year [15][16]

Group 1 - The core investment strategy focuses on long-only investment, evaluating companies from an operational and buy-and-hold perspective, rather than market-driven dynamics [1] - The articles emphasize understanding the long-term earnings power of companies and the competitive dynamics within their industries [1] - Most recommendations will be holds, indicating a cautious approach to investment, with only a small fraction of companies deemed suitable for buying at any given time [1] Group 2 - The articles aim to provide important information for future investors and introduce a healthy skepticism towards a generally bullish market [1] - There is a clear distinction made between the author's opinions and professional investment advice, emphasizing the need for readers to conduct their own due diligence [2][3]

Group 1 - The analyst has over 10 years of experience researching companies across various sectors, including commodities and technology [1] - The focus has shifted from writing a blog to creating a value investing-focused YouTube channel, where hundreds of companies have been researched [1] - The analyst expresses a particular interest in metals and mining stocks, while also being comfortable with consumer discretionary, staples, REITs, and utilities [1]

Core Viewpoint - StoneCo Ltd. (STNE) has experienced a significant downtrend, with a 22.3% decline in stock price over the past four weeks, but it is now in oversold territory, suggesting a potential turnaround due to improved earnings expectations from analysts [1]. Group 1: Technical Analysis - The Relative Strength Index (RSI) is a key technical indicator used to determine if a stock is oversold, with readings below 30 indicating oversold conditions [2]. - STNE's current RSI reading is 25.65, indicating that the heavy selling pressure may be exhausting itself, suggesting a possible reversal in the stock's trend [5]. Group 2: Fundamental Analysis - Analysts have shown strong agreement in raising earnings estimates for STNE, with a 1% increase in the consensus EPS estimate over the last 30 days, which typically correlates with price appreciation [7]. - STNE holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimate revisions and EPS surprises, indicating a strong potential for a near-term turnaround [8].

Core Insights - Value investors traditionally use the price-to-earnings (P/E) ratio to identify value stocks, but for loss-making companies, the price-to-sales (P/S) ratio is more relevant. The price-to-book (P/B) ratio is also a useful tool for identifying undervalued stocks with high return potential [1][5][9]. Valuation Ratios - The P/B ratio is calculated as market capitalization divided by book value of equity, helping to identify low-priced stocks with high growth prospects [2][5]. - A P/B ratio of less than one indicates that a stock is trading below its book value, suggesting it may be undervalued, while a ratio above one may indicate overvaluation [5][6]. - The P/B ratio is particularly useful for industries with tangible assets, such as finance and manufacturing, but can be misleading for companies with high R&D expenses or significant debt [8]. Book Value Definition - Book value represents the total value remaining for shareholders if a company were to liquidate its assets after settling all liabilities, calculated by subtracting total liabilities from total assets [3][4]. Screening Parameters - Stocks with a P/B ratio lower than the industry median are considered to have potential for price appreciation [11]. - Additional screening criteria include a P/S ratio below the industry median, a P/E ratio below the industry median, a PEG ratio less than 1, a current price of at least $5, an average 20-day volume of at least 100,000, and a Zacks Rank of 1 or 2 [12][13][14]. Selected Stocks - Five stocks identified with low P/B ratios and solid growth potential include: - **StoneCo (STNE)**: Financial technology solutions provider with a projected 3-5 year EPS growth rate of 30.3% and a Zacks Rank of 2 [15]. - **Great Lakes Dredge & Dock (GLDD)**: Largest U.S. dredging services provider with a projected EPS growth rate of 12.0% and a Zacks Rank of 1 [16]. - **EnerSys (ENS)**: Manufacturer of industrial batteries with a projected EPS growth rate of 15.0% and a Zacks Rank of 2 [17]. - **MillerKnoll (MLKN)**: Design solutions provider with a projected EPS growth rate of 12.0% and a Zacks Rank of 2 [17]. - **Keros Therapeutics (KROS)**: Clinical-stage biotech with a projected EPS growth rate of 23.6% and a Zacks Rank of 1 [18].

Market Overview - The U.S. Senate's actions to resolve the government shutdown have restored access to delayed official data, leading to increased investor optimism regarding economic indicators related to inflation, employment, and Federal Reserve actions [1] - Major U.S. stock indexes experienced significant gains, with the S&P 500 rising 1.5% to 6,832.43, the Nasdaq Composite gaining 2.3% to 23,527.17, and the Dow Jones Industrial Average increasing 0.8% to 47,368.63, reflecting renewed confidence in the economy [2] Value Stocks - The change in market sentiment has enhanced the attractiveness of value stocks, which typically benefit from stabilizing economic conditions and reduced market volatility [3] - Companies such as Great Lakes Dredge & Dock Corporation (GLDD), StoneCo Ltd. (STNE), PG&E Corporation (PCG), and Pan American Silver Corp. (PAAS) are highlighted for their low Price to Cash Flow (P/CF) ratios, indicating strong potential for recovery as investors recognize their inherent value [4][10] Price to Cash Flow Ratio - The P/CF ratio is emphasized as a critical metric for evaluating a company's financial health, as it assesses the market price of a stock relative to its cash flow per share, with lower values being more favorable [7][11] - Positive cash flow is indicative of a company's ability to manage debt, reinvest, and provide returns to shareholders, while negative cash flow suggests liquidity issues [9] Investment Strategy - A comprehensive investment strategy should not rely solely on the P/CF metric; it should also incorporate other valuation metrics such as price-to-earnings (P/E), price-to-book (P/B), and price-to-sales (P/S) ratios to avoid value traps [10][11] - Parameters for selecting true-value stocks include a P/CF ratio less than or equal to the industry median, a minimum stock price of $5, and a Zacks Rank of 1 or 2, which indicates strong buy potential [11][14] Company Performance Highlights - Great Lakes Dredge & Dock (GLDD) has a trailing four-quarter earnings surprise of 65.5% and is projected to see sales and EPS growth of 11.6% and 31%, respectively [15][16] - StoneCo (STNE) has a trailing earnings surprise of 9.1% and is expected to grow sales and EPS by 11.8% and 24.4%, respectively, with shares having rallied 47.9% in the past year [16][17] - PG&E Corporation (PCG) has a trailing earnings surprise of 0.5% and is projected for sales and EPS growth of 6.7% and 10.3%, respectively, despite a 21.9% decline in shares over the past year [17][18] - Pan American Silver (PAAS) has a trailing earnings surprise of 45.2% and is expected to see significant growth in sales and EPS of 23.9% and 173.4%, respectively, with shares surging 70% in the past year [18][19]