Insights

Why StoneCo Sank Like a Stone Today

What happened

Brazil-based fintech StoneCo (NASDAQ: STNE) left investors cold on Thursday. The company’s shares took a nasty, nearly 15% hit to their price on the day. This appears to be due to a combination of a post-earnings sell-off and a price target cut from an analyst following the stock.

So what

The cutting party was multinational banking group HSBC, whose analyst Neha Agarwala gave her StoneCo price target a haircut. She reduced this to $13 per share, from the previous $15, while maintaining her hold recommendation on the stock.

The reasons behind Agarwala’s move weren’t immediately clear. We do know that it wasn’t trailblazing — last Friday, Bank of America Securities prognosticator Mario Perry acted similarly. He lowered his price target to $14 per share from the preceding $17, and like his HSBC peer he kept his neutral (hold) recommendation.

Both analysts were a bit out of step with the market, which collectively had been very bullish on StoneCo since the company reported its first-quarter earnings after market hours this past Thursday. That was to be expected, as the South American fintech more than doubled its revenue on a year-over-year basis, while its net income margin ballooned to over 6% from the first-quarter 2021 level of less than 2%.

Now what

As sometimes happens in instances when a growth company delivers a strong earnings report, StoneCo’s stock popped and now it’s obeying gravity as certain investors take profits and move on. Mix that in with an analyst target price cut or two, and you’ve got the fairly common situation StoneCo stock found itself in on Thursday.

As the stock’s movement was largely due to these factors, the drop shouldn’t change anyone’s view of the Brazilian company’s fundamentals or prospects. 

Bank of America is an advertising partner of The Ascent, a Motley Fool company. HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Stoneco LTD. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.

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