StoneCo (STNE) Stock Looks Cheap Based On Its Earnings

StoneCo has seen its share price move sharply in recent years, and that swing now raises a simple question for you as an investor. Is today's valuation supported by what the Brazilian payments group is actually earning?

• The stock is down 63.2% over 5 years. This puts the focus squarely on whether the current P/E is aligned with the earnings power the business is producing.

• Recent political news in Brazil that moved StoneCo's share price has highlighted how sensitive the company's earnings outlook can be to credit quality, funding costs and future profitability expectations.

• There is a second opinion on StoneCo worth weighing. See what analysts think StoneCo's shares could be worth .

The stock's next move may depend on whether StoneCo's current earnings can reasonably support the valuation investors are paying today.

If you want to test the same earnings driven valuation question beyond StoneCo, widen the lens with our 35 high quality undervalued stocks

Does StoneCo Look Undervalued on Earnings?

For a payments-focused group like StoneCo that reports positive earnings, the P/E ratio gives a direct read on what you are paying for each unit of profit. StoneCo currently trades on a P/E of 3.8x, which is far below the diversified financial industry average of 17.1x and the broader peer group at 20.6x. That gap means the market is valuing each dollar of StoneCo earnings at a sizable discount to many other financial stocks.

Recent political news in Brazil that pushed StoneCo sharply higher has not closed that discount, since the current P/E still sits below the level suggested by a tailored fair multiple that takes account of the company's growth profile, profitability, size and risk. The model treated that benchmark as the reference point and the present 3.8x readings come in underneath it. This frames the stock as undervalued on this earnings measure even after the latest price reaction. Explore the numbers behind StoneCo's P/E valuation .

The StoneCo Narrative: What Would Justify Today's Price?

StoneCo's Simply Wall St Narratives pick up where the P/E puzzle leaves off and spell out what kind of growth, margins and earnings path would need to play out for the stock to be worth materially more or less than today's price on the Community page. Rather than relying on a single multiple or model line, each Narrative lays out the key building blocks behind its fair value view so you can later compare those assumptions with the actual results StoneCo reports.

Bullish and bearish community views on StoneCo are split by how much credit growth and banking deposits can offset pressure elsewhere in the business.