StoneCo Plunges 26% in 3 Months: Should You Stay Away From the Stock?

Stock Performance - StoneCo (STNE) shares declined 26.1% over the trailing three months, underperforming the Zacks Computer & Technology sector's return of 6.7% and the Zacks Internet - Software industry's appreciation of 6.5% [1] - STNE shares lagged peers like Fortinet (FTNT), Paylocity Holding (PCTY), and Smartsheet (SMAR), which appreciated 23.1%, 16.9%, and 1.1%, respectively, over the same period [1] Financial Performance - The Zacks Consensus Estimate for STNE's Q4 2024 revenues is $585.02 billion, indicating a year-over-year decline of 10.80$2.29 billion, suggesting a year-over-year decline of 5.27% [4] - The consensus mark for 2024 earnings is $1.17 per share, down 5 cents over the past 30 days, but indicating year-over-year growth of 20.62% [5] - StoneCo has a mixed earnings surprise history, missing the Zacks Consensus Estimate in one of the trailing four quarters and beating the other three, resulting in an average surprise of 3.42% [5] Operational Challenges - StoneCo's underperformance is attributed to a decline in Total Payment Volume (TPV) within the key accounts segment, led by a loss of volume from a major sub-acquirer in Q3 2024 [2] - The Non-Performing Loans (NPL) rate for Merchant Solutions increased to 3.7% from 2.6% last quarter, indicating a higher risk of loss unless outstanding debts are recovered [3] - The key accounts segment experienced an 11.3% sequential decline in TPV [3] - Financial expenses are expected to rise in Q4 due to higher interest rates [10] Growth Prospects - StoneCo saw strong growth in TPV for its Micro, Small, and Medium Business (MSMB) clients, with a 20% year-over-year increase to BRL 114 billion in Q3 2024 [6] - MSMB TPV is projected to keep growing, driven by steady gains in Card TPV and a significant rise in PIX QR code volumes [6] - The MSMB segment reached a record take rate of 2.58% in Q3 2024, reflecting effective revenue generation driven by strong payment take rates and increased monetization in banking and credit services [7] - StoneCo reported 4 million active payment clients in the MSMB segment in Q3 2024, marking 21% year-over-year growth [8] - The company achieved remarkable growth in its banking services, with its client base expanding 47% year over year to reach 2.8 million customers [8] - Total deposits improved significantly to BRL 6.8 billion, while demand deposits rose 50% to BRL 6.7 billion [9] - StoneCo surpassed its annual guidance for credit, achieving a portfolio of BRL 923 million in Q3 2024, representing quarter-over-quarter growth of nearly 30% [9] Zacks Rank - STNE currently carries a Zacks Rank 4 (Sell) [11]