We came across a bullish thesis on PagSeguro Digital Ltd. (PAGS) on Substack by The ROI Club. In this article, we will summarize the bulls’ thesis on PAGS. PagSeguro Digital Ltd. (PAGS)’s share was trading at $8.42 as of Nov 11th. PAGS’s trailing and forward P/E were 8.25 and 6.72 respectively according to Yahoo Finance.
A businesswoman using a digital tablet, making a payment using the company’s payment processing technology.
PagSeguro Digital Ltd. (PAGS) is a prominent financial technology company based in São Paulo, Brazil, offering payment systems, financial services, banking, and insurance products to a diverse range of consumers, individual entrepreneurs, micro-merchants, and small to medium-sized businesses. With Brazil’s rapidly expanding digital payment market, PAGS is uniquely positioned to benefit from the ongoing digitalization of the country’s financial ecosystem. The company operates with a capital-light model, which allows it to leverage growing transaction volumes and inflationary pricing trends without significant increases in its expenditures. This structure has resulted in consistent returns on capital of over 20%, demonstrating strong financial stewardship and suggesting robust long-term potential for investors.
The growth prospects for PagSeguro are substantial. Brazil, with a population of approximately 214 million in 2024, is undergoing a significant digital transformation. Digital payment adoption in the country has surged from 20% in 2018 to 90% in 2024, and the number of digital payment users has increased dramatically from 42 million in 2018 to nearly 193 million today. As a result, the payment ecosystem has seen a decline in the unbanked population, with the number of unbanked adults dropping from 34 million in 2018 to 22 million in 2024. This trend positions PAGS to capture a growing share of the digital payments market, which is projected to reach $253.7 billion by 2028, growing at a CAGR of 10.5% from 2024 to 2028. Furthermore, PAGS’ credit portfolio is expanding, up 10.9% year-over-year in Q2 2024, which highlights the company’s growing presence in Brazil’s credit and banking sectors.
Despite its strong performance and market-leading position, PAGS is trading at a market cap lower than it was five to eight years ago, making it an attractive investment opportunity. Even though revenue growth is expected to moderate to high single digits in the next few years, margin expansion is on the horizon, with EBIT projected to grow over 20% CAGR and free cash flow expected to increase by over 40% annually. Given its capital-light business model, PAGS could achieve over $1 billion in free cash flow by 2026, potentially benefiting from a favorable political and economic environment in Brazil. If Brazilian stocks experience a re-rating, PAGS could see a significant valuation upside, potentially offering a 2-5x return on investment, based on its high margins, consistent ROIC of over 15%, and strong growth trajectory.
PagSeguro Digital Ltd. (PAGS) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 32 hedge fund portfolios held PAGS at the end of the second quarter which was 26 in the previous quarter. While we acknowledge the risk and potential of PAGS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PAGS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.