For those STNE followers, Berkshire Hathaway just came out with it’s 13F for holdings as of March 31st and their position in STNE in unchanged (no buys or sells).
= STNE - StoneCo Ltd. 0.29 14,166,748 $41.11 $582,395,000
I remain long STNE.
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Is that a warren Buffett pick or a Todd Combs or the other guy pick, not sure what consolation it would be if the latter. Buffett has already said their records trail the S&P 500.
The days of following Berkshire picks for outperformance has come and gone.
https://www.google.com/amp/s/www.cnbc.com/amp/2019/02/25/war…
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For Stone Co., the numbers are pretty amazing:
Revenue growth: +80%
Profit margin: 33%
Rule of 40 score: 113
P/S: 9.5
Long runway of growth, and optionality, with just 30 000 software subscribers out of a customer base of 268 000 customers (92 % growth yoy). I see software revenue growth being above 100% for the medium term.
However, there is a massive FUD event, via an incumbent bank competitor providing 2 day credit card settlement for customers using the banks services, which is an apparent threat to the Stone co. business model (Stone Co derive about 50% of revenue from financial income from prepayment fees).
There are two issues with this FUD event:
- The initiative looks to be contrary to Brazil anti-competitive laws.
- The initiative looks like good at first glance, however, when you look at the banks merchant fees, the deal does not appear to be particularly attractive, when you add all the fees associated with the banks offering.
In my opinion, the FUD event is more likely than not to be a red herring. I would say there is a 20-30% chance of this impacting Stone Co. business model. So, i see there is a 70-80% chance of a significant upside, from here. If the FUD event passes, I think a share price of $55 is not out of the question in 12 months time. If the FUD event turns out to be a real issue, Stone Co. could halve in value.
There is asymmetry in the risk / reward equation that looks attractive to me.
Disclosure: I hold.
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