StoneCo Stock Up 64.3% in a Year: Buying Opportunity or Risky Timing?

Core Insights - StoneCo Ltd. (STNE) shares have increased by 64.3% over the past year, significantly outperforming the S&P 500's 16.3% gain and the Internet-Software industry's 4.7% rise [1][8] - The surge is attributed to strong performance in its financial services sector and strategic decisions, including the divestment of non-core software operations, allowing the company to target over 90% of its total addressable market, estimated at BRL 100 billion [2][8] Financial Performance - StoneCo's adjusted net income rose nearly 22% year over year for the first nine months of 2025, with a return on equity (ROE) of 24%, and the financial services division achieving an ROE of 33% [6][8] - The company's MSMB payments segment saw a 17.6% increase in active clients to 4.7 million, with total payment volume growing 13.2% [10] - Active banking clients increased by 21.8% to 3.5 million, and client deposits surged by 32%, with 84% being time-based deposits [11] Strategic Moves - The divestment of the Linx business reflects a strategic focus on core fintech operations, unlocking capital for high-return initiatives or shareholder returns [7] - StoneCo has executed BRL 2.8 billion in share repurchases over the past year, indicating strong management confidence [9] Market Position and Valuation - Despite the significant price increase, StoneCo trades at a forward P/E of 7.46X, well below its three-year high of 31.33X and the industry average of 34.14X [17][21] - The Zacks Consensus Estimate for earnings per share for 2025 and 2026 has been revised upward, reflecting positive sentiment [14] Growth Potential - The credit portfolio expanded by 148.9% year over year to BRL 2.3 billion, supported by a 139.7% increase in merchant working capital loans [12] - The company's balance sheet remains strong, ending Q3 2025 with BRL 3.5 billion in net cash, suggesting potential for further profitability without heavy reinvestment [13]