If You Own StoneCo Ltd. (STNE), You Should Buy More

Wall Street’s most bullish StoneCo Ltd. (NASDAQ:STNE) analysts are predicting the share price to blow past $47 per share during the next 12 months. The current median share price forecast by them is $40, suggesting that the stock could increase 13.48% in that time frame. The average price target of $35 calls for a nearly -0.71% increase in the stock price.

New World Fund, Inc. revealed as top hedge fund owner in StoneCo Ltd. (STNE) with a stake of over 5.08M STNE shares as of December 30, with a market value of approx. $93.66M as of today. The second largest holder, Price (T.Rowe) New Horizons Fund, with 1.74M shares which equates to $32.04M worth of the stock. At third is Price (T.Rowe) International Stock Fund, which stood pat with 1.71M shares, a 0.31% position in StoneCo Ltd., worth $31.56M. The insider holding in stood at 26.53% while institutions hold 82.9%.

StoneCo Ltd. (NASDAQ:STNE) dropped -1.15% in recent trade and currently has a stock-market value of $10.19B. The shares finished at $35.25, after trading as low as $34.75 earlier in the session. It hit an intraday high Friday at $36.15. Trading activity significantly weakened as the volume at ready counter decreased to 3,412,807 shares versus 5,837,915 in average daily trading volume over the past 20 days. So far this year, the volume has averaged about 2,625,534 shares. Now the market price is down 0% on the year and up 91.16% YTD.

STNE stock currently has a total float of 92.46M shares. Its weekly volatility is hovering around 5.54% and felt 7.82% volatility in price over a month. On the upside, the share price will test short term resistance at around $36.02. On a downside, the stock is likely to find some support, which begins at $34.62. The failure to get near-term support could push it to $33.98.

It had seen a negative analyst call from Citigroup, which downgraded the stock from Buy to Neutral on April 05. Analysts at Morgan Stanley, maintained the company shares at Overweight on March 21 but switched target price from $35 to $47. Analysts at BofA/Merrill, made their first call about the stock on January 15, recommending it is Buy. JP Morgan, released new analyst coverage on November 19, calling the stock is Neutral.

When looking at valuations, StoneCo Ltd. (STNE) has a pricey P/E of 125x as compared to industry average of 32.6x. Moreover, it trades for 30.92 times the next 12 months of expected earnings. Also, it is trading at rather expensive levels at just over 7.41x price/book and 53.98x price/sales. Compared to others, StoneCo Ltd. is in a different league with regards to profitability, having net margins of 41.4%. To put some perspective around this, the industry’s average net margin is 12.2%. It’s also very liquid in the near term, with a current ratio of 2.1. The stock has a debt/capital of 0.56.