StoneCo (STNE) - Preliminary Operating results

Preliminary Operational Metrics for the Fourth Quarter of 2018 -

Take rate in the fourth quarter of 2018 was 1.88%, a 30 basis point increase versus the fourth quarter of 2017 and a basis point increase versus the third quarter of 2018.

As of December 31, 2018 the company had 267,900 active clients, up 104.1% from 131,200 on December 31, 2017. The net addition of active clients in the fourth quarter was 33,500.

Total Payment Volume (TPV) was R$26.6 billion in the fourth quarter of 2018, an increase of 73.8% from R$15.3 billion in the fourth quarter of 2017.

STNE is a hyper-growth fintech business in Brazil and it appears to have a long runway for growth.

The business is trading at a reasonable valuation and given the pedigree of its backers/investors (Berkshire, Walmart family, Alibaba and Jorge Paulo Lemann - 3G Capital), this is a high conviction position in my portfolio.

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Hi GrowthMonkey,

The business is trading at a reasonable valuation and given the pedigree of its backers/investors (Berkshire, Walmart family, Alibaba and Jorge Paulo Lemann - 3G Capital), this is a high conviction position in my portfolio.

What do you consider a reasonable valuation? What numbers are you using to make this statement?

thanks,
Andy

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Hi Andy,

STNE is trading at a forward year-end PE ratio of just 27 and the company is projected to grow EPS by 110% CAGR over the next 3-5 years!

So, the PEG ratio (PE ratio divided by projected EPS growth rate) is only 0.25 which is not reasonable, it is ridiculously cheap; bargain bssement cheap!

Normally, I consider a PEG ratio up to 1.25 as cheap; between 1.25-1.75 as reasonable and anything above 1.75 as potentially overvalued - but thats just how I view it.

Please note that I don’t value the hypergrowth SaaS companies in this manner. Since those are deliberately unprofitable (due to very high sales + marketing spend), I judge them by their EV/sales relative to their sales growth rate and length of potential growth runway.

Hope this helps,

GM

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Hope this helps,

GM

That was very helpful GM thanks for your explanation and thanks for being part of the board.

Andy

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You are welcome and thanks to all the people who are super smart and make this board so special!

The biggest thanks to Saul who started this board and all the guys who keep it uncluttered.

Best,

GM

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