Warren Buffett, CEO of Berkshire Hathaway, has generated life-changing returns for his company's investors and motivated millions of others throughout the world to take wealth-building initiatives. While the Oracle of Omaha is most known for being a value investor, Berkshire also has holdings in several growth firms with explosive growth potential.
Long-term investors who follow Buffett's lead in accumulating holdings in high-quality growth businesses might reap enormous rewards. With that in mind, continue reading to see why StoneCo stock is an outstanding buy-and-hold option right now.
(Photo : by Jamie McCarthy/Getty Images)Warren Buffett, CEO of Berkshire Hathaway, has generated life-changing returns for his company's investors and motivated millions of others throughout the world to take wealth-building initiatives. While the Oracle of Omaha is most known for being a value investor, Berkshire also has holdings in several growth firms with explosive growth potential.
All About StoneCo
StoneCo is a Brazilian fintech startup that offers payment processing and other services to small and medium-sized companies (SMBs). If an SMB wishes to accept payments by card or app, it must have sufficient hardware and a processing network.
Brazil is Latin America's most populated country and greatest economy, with over 217 million inhabitants. Adoption of card-and-app-based payments is still in its early stages in many other regions of the world. However, it is fast expanding and is ready for significant development as the usage of cash falls in favor of payment technology and e-commerce grows in popularity.
Berkshire Hathaway very definitely purchased StoneCo shares in 2018 because of the highly good long-term growth prospects for payment-processing services in the Brazilian market. Buffett's company may have also recognized great potential in the fintech credit industry, which gave loans to small and medium-sized businesses.
Unfortunately, while StoneCo's payment-processing business has risen at an astounding rate, the company's credit business has pulled down its performance in recent years. The fintech company had been depending on Brazil's official register to verify whether applicants were creditworthy, but this system proved to be severely flawed.
As a result, StoneCo's credit portfolio became clogged with poor loans. The corporation suffered massive losses when it sold off distressed loans at rock-bottom rates and wrote off several debts outright. It also temporarily halted new credit extensions to SMBs.
That all sounds rather bleak, and it helps to explain why the company's stock price is down 82% from its all-time high in February 2021. However, StoneCo's payment-processing business has never ceased growing, and the company has rectified the past challenges and losses from its credit business.
With its previous issues resolved, this Buffett-backed growth company is prepared to produce excellent returns.
StoneCo's revenues increased 28% in the first three quarters of 2023, reaching around 8.8 billion Brazilian reals ($1.8 billion). Meanwhile, non-GAAP (adjusted) earnings, which are not calculated in line with generally accepted accounting principles, increased 381% to 993.7 million reals, or nearly $204 million.
While some of the company's fast earnings growth can be attributed to the company's lower profits in 2022, StoneCo's momentum is obvious and is certain to continue. From 2024 to 2027, the business forecasts adjusted profits to expand at a compound annual growth rate of 31%.
StoneCo is presently selling at 14 times the estimated profit for 2024, which appears to be a fairly low valuation given the company's profit growth. The fintech player is trading at extremely advantageous levels for long-term investors, with a market capitalization of over $5.4 billion and a net cash position of approximately $890 million.
If the firm even comes close to meeting its profit expectations, investors who acquire the stock now will almost certainly see spectacular gains.
