Is This Warren Buffett Stock A Buy?

iTrustCapital is a software platform that allows clients to buy and sell cryptocurrencies, gold, and silver through their retirement accounts. ZERO monthly or annual Fees… Zero Sign Up Fees, and some of the lowest transaction fees in the industry! A growing list of over 25+ cryptocurrencies, physical gold ownership, and physical silver ownership, all in your personalized IRA. Accounts can self-trade 24/7 from anywhere in the US. Our mobile app makes it even easier!

Sign Up Today to Receive a $100 Funding Reward.

Some will seek out growth companies. 

Others will only look at companies that offer dividends.

Some look for specific valuations. 

But one of the oldest strategies on Wall Street has been to follow the smart money. 

And there are very few better than Warren Buffett. 

Today we are going to look at a Warren Buffett stock that is trading significantly lower than when he first got it. 

StoneCo (STNE) isn’t a traditional Buffett stock.

It’s both technology and based outside the U.S.

However, it’s one of the most popular business software searches amongst financial pros, rarely dropping out of the top 5.

But with a global recession looming, is STNE worth your dollars?

Crypto Expert Reveals Next Trade (Sponsored)

Bitcoin “Hall of Famer” Charlie Shrem just issued a new crypto recommendation…

A $20 play that could be even bigger than Coinbase. 

Read more here.

Stone’s Business

StoneCo (STNE)  offers financial services and software solutions to merchants and integrated partners for e-commerce, in-store, online, and mobile channels in Brazil. 

However, it’s headquartered in the Cayman Islands.

STNE aims to become the best financial operating system for Brazilian merchants and offer the best workflow tool for them. 

To that end, its financial services business gained 108% YoY in revenues while software gained 26.9% YoY (proforma for Linx). 

The company has over 1.9 million active clients. And has conducted over R$308 billion in total payment volume. 

Financials

STNE has been able to double its revenues in less than 3 years, going from R$2.3 billion in 2019 to R$5.6 billion (TTM). 

Furthermore, the firm has been able to improve its gross profit margin, which sits at 69.2%, a significant jump from its five-year average of 53.5%. 

But despite the jump in revenue and gross profit margin, operating income has not improved as well. And net income is actually negative. 

However, it does generate positive cash from operations, hitting $943.3 million in the last twelve months.

STNE has approximately $1.9 billion in cash, and $1.59 billion in total debt, with a market cap of around $2.7 billion. 

From a liquidity standpoint, STNE looks decent. It has a current and quick ratio of 1.31x, which means it has enough short-term assets to cover its short-term liabilities. 

Valuation

STNE has negative earnings per share. And because of that, it has no P/E ratio. 

However, it does project a forward Non-GAAP P/E ratio of 29.45x, well above the sector average of 17.68x.

STNE has an attractive price-to-book ratio of 0.99x, which is significantly better than the sector median of 3.17x. 

Moreover, the enterprise value to sales ratio is 1.66x, which is a lot better than the industry average of 3.04x. 

But make no mistake about it. STNE is a growth company. And that is clear when you take a look at its gross profit margin of 69.2%. 

And while it is not profitable yet. It does generate $2.26 in free cash flow per share

STNE is growing revenues at a triple-digit pace. Which is even better than its 5-year average of 69.2%

Our Opinion – 8/10

STNE is growing its revenues rapidly. However, the company’s success is tied to the Brazilian economy, which is very hard to predict. 

That said, the company generates an enormous amount of cash per share, both operationally and after capital expenditures.

If it’s able to maintain these levels, it stands to generate enough cash to buy back all its outstanding shares in a matter of years.

This is a risky stock but one we like given the price.